diff --git a/raw/filings/0000110471/2014/0000110471-15-000012/filing.txt b/raw/filings/0000110471/2014/0000110471-15-000012/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..163d3fd7ca985c7f5b7f39bb15467008d0615416 --- /dev/null +++ b/raw/filings/0000110471/2014/0000110471-15-000012/filing.txt @@ -0,0 +1,6623 @@ +10-K +1 +wolverineform10-k2014.htm +FORM 10-K +Wolverine Form 10-K 2014 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended January 3, 2015 +or +¨ +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 001-6024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware +38-1185150 +State or other jurisdiction of +incorporation or organization +(I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E., +Rockford, Michigan +49351 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Securities Exchange Act: +Title of each class +Name of each exchange on which registered +Common Stock, $1 Par Value +New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 þ No ¨ +Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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. þ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer þ Accelerated filer ¨ +Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 13, 2014 , the last business day of the registrant’s most recently completed second fiscal quarter: $ 2,584,414,447 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 27, 2015 : 103,075,593 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting to be held April 22, 2015 are incorporated by reference into Part III of this report. +Table of Contents +Table of Contents +PART I +Item 1. +Business +4 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +18 +Item 2. +Properties +18 +Item 3. +Legal Proceedings +19 +Item 4. +Mine Safety Disclosures +19 +Supplemental Item. +Executive Officers of the Registrant +19 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +20 +Item 6. +Selected Financial Data +22 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +22 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +32 +Item 8. +Financial Statements and Supplementary Data +33 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +79 +Item 9A. +Controls and Procedures +79 +Item 9B. +Other Information +79 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +79 +Item 11. +Executive Compensation +80 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +80 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +81 +Item 14. +Principal Accounting Fees and Services +81 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +82 +SIGNATURES +83 +Appendix A: Financial Statement Schedule +A-1 +Exhibit Index +E-1 +2 +Table of Contents +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• +changes in national, regional or global economic and market conditions; +• +the impact of financial and credit markets on the Company, its suppliers and customers; +• +changes in interest rates, tax laws, duties, tariffs, quotas or applicable assessments in countries of import and export; +• +the impact of regulation, regulatory and legal proceedings and legal compliance risks; +• +currency fluctuations; +• +currency restrictions; +• +changes in future pension funding requirements and pension expenses; +• +the risk of impairment to goodwill and other acquired intangibles; +• +the risks of doing business in developing countries, and politically or economically volatile areas; +• +the ability to secure and protect owned intellectual property or use licensed intellectual property; +• +changes in consumer preferences, spending patterns, buying patterns, price sensitivity or demand for the Company’s products; +• +risks related to the significant investment in, and performance of, the Company’s consumer-direct business; +• +the impact of seasonality and unpredictable weather conditions; +• +changes in relationships with, including the loss of, significant customers; +• +the cancellation of orders for future delivery; +• +the failure of the U.S. Department of Defense to exercise future purchase options or award new contracts, or the cancellation or modification of existing contracts by the Department of Defense or other military purchasers; +• +the cost, availability and management of raw materials, inventories, services and labor for owned and contract manufacturers; +• +problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; +• +the potential breach of the Company’s databases, or those of its vendors, which contain certain personal information or payment card data; +• +the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• +strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, and implementing new initiatives and ventures; and +• +the success of the Company’s consumer-direct realignment initiatives. +These uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +3 +Table of Contents +PART I +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through Company-owned wholesale and consumer-direct operations and through third-party licensees and distributors. +In October 2012, the Company acquired the Performance + Lifestyle business of Collective Brands, Inc. ("PLG" or the "PLG Acquisition"), which included the acquisition of the Sperry Top-Sider ® , Saucony ® , Stride Rite ® and Keds ® brands. The PLG acquisition nearly doubled the size of the Company. Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Cushe ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Soft Style ® , Sperry Top-Sider ® , Stride Rite ® and Wolverine ® . The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel; Sperry Top-Sider ® apparel; and Stride Rite ® apparel. Cat ® is a registered trademark of Caterpillar, Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s brands are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company's portfolio of brands is organized into the following three operating segments, which the Company has determined are reportable operating segments: +• +Lifestyle Group , consisting of Sperry Top-Sider ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel, and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Chaco ® footwear, and Cushe ® footwear; and +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear, and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue of the operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; royalty income from the licensing of the Company’s trademarks; revenue from distribution arrangements with third-party distributors; and revenue from the Company’s mono-branded consumer-direct businesses, including revenue from eCommerce websites. +The Company also reports "Other" and "Corporate" categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations, and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses including acquisition-related transaction and integration costs and restructuring costs. The Company’s operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. +The Company’s Global Operations Group is responsible for manufacturing, sourcing, distribution, logistics and customer support. The Company directly sells its products in the United States ("U.S."), Canada and certain countries in Europe to a wide range of customers, including department stores, national chains, catalog retailers, specialty retailers, mass merchants and internet retailers, and to governments and municipalities. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments and other operating categories and financial information by geographic area is found in Note 15 to the consolidated financial statements of the Company which are included in Item 8 of this Annual Report on Form 10-K. +4 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Lifestyle Group +Sperry Top-Sider ® : Sperry Top-Sider ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry Top-Sider ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry Top-Sider ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry Top-Sider ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring A SV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry Top-Sider ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Stride Rite ® : With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. Stride Rite ® is focused on delivering the best possible footwear across a range of categories for children under nine years of age. All Stride Rite ® products benefit from nearly a century of in-depth knowledge and understanding of how children walk and grow. Every new material and component is rigorously tested to ensure safety, proper fit and durability for children. Stride Rite ® sells product under its own namesake brand, as well as children's footwear offerings from Saucony ® , Sperry Top-Sider ® , Keds ® , Merrell ® and select other footwear brands, through a network of Company-owned mall-based specialty retail stores and a consumer-direct website. Stride Rite ® also distributes children's footwear through better department stores, independent retailers, sporting goods chains, mall specialty retailers, internet retailers and national family footwear stores. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Keds ® : Keds ® is an authentic casual lifestyle brand with a foundation in canvas footwear. This iconic American brand was founded in 1916 with the introduction of the Champion ® sneaker. The simple and chic design ignited a style revolution, from fashion icons to the girl next door. Today, Keds ® is fueled by a passion for imagination, inspiring a new generation of girls to stay authentic, optimistic and brave. The brand targets teen girl consumers through an extensive collection of Champion ® originals, as well as a wide assortment of fashion sneakers and slip-ons. The brand’s product architecture consists of both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions. +Soft Style ® : Soft Style ® is a women’s dress and casual footwear brand, with a combination of all-day comfort, trend-right details, feminine style and great value. +2. +Performance Group +Merrell ® : Merrell ® footwear is designed to inspire and encourage participation in the outdoors. Known for quality, durability and comfort, Merrell ® uses a variety of proprietary designs and technologies to create footwear with distinctive styling, performance and comfort features for use on the trail or in town. Merrell ® footwear products offer a wide range of styles, from technical hiking and trail-inspired footwear to versatile lifestyle products for more casual outdoor adventures for men and women. Merrell ® footwear products are sold primarily through outdoor specialty retailers, sporting goods chains, department stores, internet retailers and catalog retailers. Merrell ® apparel extends the Merrell ® commitment to an active outdoor lifestyle with a versatile line of apparel built for the summit or the street. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories for men and women, including packs, bags and luggage. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite +5 +Table of Contents +Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, natural motion, race, trail and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers. +Cushe ® : Cushe ® is a lifestyle brand focusing on relaxed, design-led footwear with a Cushe ® Mellow comfort story for active men and women. The Cushe ® footwear business targets younger adult consumers with products ranging from sport casual to hanging sandals sold through better-grade retailers. +3. +Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) outdoor sport; and (iii) rugged casual. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged casual and outdoor sport product lines incorporate DuraShocks ® , Wolverine iCS ® and other technologies and comfort features into products designed for casual and outdoor sport use. The brand's rugged casual line targets consumers that have active lifestyles. The outdoor sport line is designed to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar, Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar, Inc. +Bates ® Uniform Footwear: The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to the U.S. Department of Defense and the military branches of several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Sebago ® : Established i n 1946, Sebago ® shares its New England heritage and tradition with those who inspire to make the journey with them. Sebago ® creates timeless, handcrafted dress and casual products from quality materials, all with a sense of purpose and style. The original, handsewn Classic penny loafer and Docksides ® boat shoe remain unchanged since first crafted by Sebago ® decades ago. While embracing its heritage, Sebago ® has a true passion for taking the best of the past and evolving with today's consumer in mind. Along with authentic classics, the brand also offers new, modern footwear silhouettes and apparel and accessories. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including +6 +Table of Contents +steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company also operates a multi-brand consumer-direct business and a performance leather business. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company uses a network of independent Shoemobile ® distribution outlets to distribute certain of the Company’s work and occupational footwear brands at industrial facilities. +• +The Company solicits all branches of the U.S. military and submits bids for contracts to supply specific footwear products. +In addition to its wholesale activities, the Company also operates a mono- and multi-brand consumer-direct distribution channel, as described above. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2014 . +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue (and taking into consideration the 16 weeks or 17 weeks included in the Company’s fiscal fourth quarter versus the 12 weeks included in each +7 +Table of Contents +of the first three fiscal quarters). The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal free cash flow and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company has formed joint ventures to market and distribute footwear and apparel in Colombia. The Company believes that joint ventures will provide it with a meaningful ownership stake and near-term brand impact in this fast-growing market than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel manufactured or sourced under the Company’s brand names. The Company’s licensees directly control the balance. A substantial majority of the units sourced or manufactured by the Company are procured from third parties, with the remainder of the manufacturing produced at a Company-owned facility. The Company sources a majority of its footwear from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. Footwear manufactured by the Company is produced at a Company-operated facility located in Michigan. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 40 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Cushe ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Sebago ® , Q Form ® , Sperry Top-Sider ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks +8 +Table of Contents +pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through June 30, 2016. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 14, 2015, the Company had an order backlog of approximately $1,170 million compared to an order backlog of approximately $1,005 million at February 8, 2014. The majority of the backlog relates to orders for products expected to ship in fiscal 2015 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. The Company has a significant number of major competitors for its brands of footwear and apparel. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +Compliance with domestic and foreign and domestic federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of January 3, 2015 , the Company had approximately 6,600 domestic and foreign production, office and sales employees. Approximately 56 employees were covered by a single union contract that expires on December 31, 2017. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee +9 +Table of Contents +Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. +Risk Factors +Risks Related to the Company’s Business +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, operating results or financial position. +The Company’s operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licenses operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global economic conditions. Consumer confidence may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, inflation, high levels of unemployment or consumer debt, high tax rates or other economic factors. A decline in consumer confidence could adversely affect demand for the Company’s products. Changes and the growth or decline of global footwear, apparel or consumer-direct markets could negatively affect consumer spending. A decline in demand for the Company’s products could reduce its revenues or profit margins. +General economic conditions and other factors, such as those listed above, may increase the Company’s cost of sales and decrease the Company’s profitability. The Company’s profitability is also dependent on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle and pigskin hides, used to make and transport its products, as well as the prices of labor, insurance and health care, all of which may be affected by general economic conditions. +The Company operates in competitive industries and markets. +The Company competes with a large number of manufacturers, marketers, wholesalers, or retailers of footwear or apparel, and consumer-direct companies. Some of these competitors are larger and have greater resources than the Company. Important elements of such competition are product performance and quality, including technological improvements, product identity, competitive pricing and the ability to adapt to style changes. Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company's efforts to maintain and improve its competitive position by monitoring and responding to changes in consumer preferences, increasing brand awareness, gaining sourcing efficiencies, and enhancing the style, comfort and perceived value of its products may not be successful. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences will affect its future sales. If the Company is unable to respond effectively to competitive pressures and changes in consumer preferences and spending, its results of operations and financial position may be adversely affected. +Many of the Company’s competitors have larger customer and consumer bases, are able to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own more recognized brands; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s results of operations and financial position could be adversely affected if it fails to compete successfully in the footwear, apparel and retail markets. +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or adjust to changing footwear and apparel trends. +The Company’s success depends in part on its brands’ images. If the Company is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, the names and images of its brands may be impaired. If the Company fails to react appropriately to changes in consumer preferences, consumers may consider its brands’ images to be outdated or associate its brands with styles that are no longer popular. Such failures could result in substantial unsold inventory and adversely affect the Company’s operating results. +10 +Table of Contents +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to manage its inventories effectively is an important factor in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers, and, consequently, diminish brand loyalty and decrease sales. Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions to prevent terrorism, the loss of most favored nation trading status or other trade restrictions may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and could adversely affect its sales and profitability. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency fluctuations affect the Company’s revenue and profitability. Changes in currency exchange rates may impact the Company’s financial results positively or negatively in one period and not another, which may make it difficult to compare its operating results from different periods. Currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by making their costs of raw materials or other production costs more expensive and more difficult to finance, thereby raising prices for the Company, its distributors or its licensees. The Company’s hedging strategy is not designed to reduce all risks, as no hedging strategy can completely insulate the Company from foreign exchange risk. For a more detailed discussion of the risks related to foreign currency fluctuation, see Item 7A: "Quantitative and Qualitative Disclosures About Market Risk". +Significant capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly the Asia Pacific region. As is common in the industry, the Company does not have long-term contracts with its third-party suppliers. There can be no assurance that the Company will not experience difficulties with such suppliers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party suppliers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +The cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products depends on the cost of components, services, labor, equipment and raw materials, including leather and materials used in the production of footwear. The cost of services and materials is subject to change based on availability and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for services and materials used in production could have a negative impact on the Company’s results of operations and financial position. The Company purchases raw pigskins for its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +11 +Table of Contents +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, including the current labor dispute at west coast U.S. ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, lockouts, strikes or other disruptions. Any such disruption may have a material adverse effect on the Company’s business by potentially resulting in cancelled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +A significant reduction in wholesale customer purchases of the Company’s products or failure of customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success is directly related to its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its customers. Sales to the Company’s customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the customers. Failure to fill customers’ orders in a timely manner could harm the Company’s relationships with its customers. Furthermore, if any of the Company’s major customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to customers and extends credit based on an evaluation of each customer’s financial condition. The financial difficulties of a customer could cause the Company to stop doing business with that customer or reduce its business with that customer. The Company’s inability to collect from its customers or a cessation or reduction of sales to certain customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer customers, customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry its products. In addition, changes in the channels of distribution, such as the continued growth of internet commerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company has been awarded a number of U.S. Department of Defense contracts that include future purchase options for Bates ® footwear. The U.S. Department of Defense is not obligated to exercise these future purchase options for Bates ® footwear or to solicit future footwear awards at levels consistent with historical awards or in a manner in which the Company, as a large business contractor under Small Business Administration rules, is eligible to bid. Failure by the U.S. Department of Defense to exercise purchase options or the Company’s failure to secure future U.S. Department of Defense contracts could have an adverse effect on the Company’s results of operations and financial position. +The Company’s consumer-direct operations have required, and will continue to require, a substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s consumer-direct locations have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company has also made substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and employee-related costs. Many factors, some of which are beyond the Company’s control, pose risks and uncertainties to the Company’s consumer-direct operations. These factors include, but are not limited to, changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels and the Company's ability to increase sales in eCommerce and mobility channels. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as damage its reputation and brands, and could materially affect the Company’s results of operations and financial position. +Weather conditions affect the Company’s business. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for the season, such as an unusually cold and rainy summer, or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate merchandise may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are highly dependent on future weather conditions and its ability to react to changes in weather conditions. Weather conditions can also impact the Company's ability to distribute its products on a timely basis. +12 +Table of Contents +Changes in the credit markets could adversely affect the Company’s results of operations and financial position. +Changes in the credit markets could adversely impact the Company’s future results of operations and financial position. If the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products, or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Unfavorable findings resulting from a government audit could subject the Company to a variety of penalties and sanctions, and could negatively impact its future revenues. +The U.S. federal government has the right to audit the Company’s performance under its government contracts. If a government audit discovers improper or illegal activities, the Company could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with U.S. federal government agencies. The Company could also suffer serious harm to its reputation if the U.S. government alleges that the Company acted in an improper or illegal manner, whether or not any such allegations have merit. If, as the result of an audit or for any other reason, the Company is suspended or barred from contracting with the U.S. federal government generally, or any specific agency thereof, if the Company’s reputation or relationship with government agencies is impaired, or if the U.S. federal government otherwise ceases doing business with the Company or significantly decreases the amount of business it does with the Company, the Company’s revenue and profitability would decrease. The Company is also subject to customs and other audits in various jurisdictions where it operates. Negative audit findings in foreign jurisdictions similarly could have an adverse effect on the Company’s results of operations and financial position. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have a material adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. federal statutory income tax rate due to discrete items and because the Company does not provide for U.S. taxes on earnings it considers to be permanently reinvested in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; decreases in the amount of earnings in countries with low statutory tax rates; or if the Company repatriates foreign earnings (or if U.S. tax laws change to tax foreign earnings) for which no provision for U.S. taxes has previously been made. An increase in the Company’s effective tax rate could have a material adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes, and establishes reserves for potential adjustments that may result from these examinations. There can be no assurance that the final determination of any of these examinations will not have an adverse effect on the Company’s results of operations and financial position. +Failure of the Company’s third-party licensees and distributors to meet sales goals or to make timely payments on amounts owed to the Company could adversely affect the Company’s financial performance. +In many international markets, independent third-party licensees or distributors sell the Company’s products. Failure by the Company’s licensees or distributors to meet planned annual sales goals or to make timely payments on amounts owed to the Company could have an adverse effect on the Company’s business, results of operations and financial position. If a change in licensee or distributor becomes necessary, it may be difficult and costly to locate an acceptable substitute distributor or licensee and the Company may experience increased costs, as well as substantial disruption and a resulting loss of sales and brand equity in the market where such licensee or distributor operates. +The Company’s reputation and competitive position are dependent on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company requires its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business to comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could receive negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company's attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, +13 +Table of Contents +distribution, advertising and promotion of its licensed products may not be successful, as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company's products are marketed in approximately 200 countries and territories, and the Company sources a substantial majority of its products offshore. Concerns regarding acts of terrorism or regional and international conflicts have created significant global economic and political uncertainties that may have material and adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports, and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. The Company is subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability, nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Concerns regarding euro instability could adversely affect the Company’s business, results of operations and financing. +Concerns persist regarding the debt burden of certain countries in the Eurozone, including Greece, and their ability to meet future financial obligations, as well as the overall stability of the euro and the suitability of the euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. These concerns could lead to the re-introduction of individual currencies in one or more Eurozone countries, or, in more extreme circumstances, the possible dissolution of the euro as a currency. Should the euro be dissolved, the legal and contractual consequences for holders of euro-denominated obligations would be determined by laws in effect at that time. These potential developments, or market perceptions concerning these and related issues, could adversely affect the value of the Company’s euro-denominated assets and obligations. In addition, concerns over the effect of this financial crisis on financial institutions in Europe and elsewhere could have an adverse impact on the capital markets generally and, more specifically, on the ability of the Company’s customers, suppliers and lenders to finance their respective businesses. +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company invests significant resources to develop and protect its intellectual property, and it believes that its trademarks and other intellectual property rights are important to its future success. The Company’s ability to remain competitive is dependent upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property, or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. In addition, if the Company does not prevail on any intellectual property claims, then it may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. Expiration or early termination by the licensor of any of these license agreements could have a material adverse effect on the Company’s business, results of operations and financial position. +The Company’s inability to attract and retain executive managers and other key employees, or the loss of one or more executive managers or other key employees, could adversely affect the Company’s business. +The Company depends on its executive management and other key employees. In the footwear, apparel and consumer-direct industries, competition for key executive talent is intense, and the Company’s failure to identify, attract or retain executive managers or other key employees could adversely affect its business. The Company must offer and maintain competitive compensation packages to effectively recruit and retain such individuals. Further, the loss of one or more executive managers or other key employees, or the Company’s failure to successfully implement succession planning, could adversely affect the Company, its results of operations or financial position. +14 +Table of Contents +Regulatory and other changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations, and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s marketing programs, e-commerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could substantially harm the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company strives to comply with all applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If so, the Company may suffer damage to its reputation and be subject to proceedings or actions against it by governmental entities or others. Any such proceeding or action could hurt the Company’s reputation, force it to spend significant amounts to defend its practices, distract its management, increase its costs of doing business, and result in monetary liability. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to ensure it remains in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease, its opportunities for growth may be curtailed by its compliance capabilities or reputational harm and its potential liability for security breaches may increase. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may distract the Company’s management team and require it to undertake costly and time consuming remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could result in loss of business. Failure to comply with the Standard or Card Rules could result in loosing certification under the PCI standards and an inability to process payments. +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be materially adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +15 +Table of Contents +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company has become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible material adverse impact on its financial condition and results of operations. While the Company maintains insurance coverage that may, subject to policy terms and conditions cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses and would not remedy damage to its reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and payment card industry security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistic and distribution systems include computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. Therefore, its operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers. The Company's business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity is dependent on the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be materially adversely affected. +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions, and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company cannot provide assurance that it will be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future could have an adverse effect on the Company’s results of operations and financial position. The Company may not consummate a potential acquisition for a variety of reasons, but it may nonetheless incur material costs in the preliminary stages of such an acquisition that it cannot recover. +16 +Table of Contents +Maintenance and growth of the Company’s business depends upon the availability of adequate capital. +The maintenance and growth of the Company’s business depends on the availability of adequate capital, which in turn depends in large part on cash flow generated by the Company’s business and the availability of equity and debt financing. The Company cannot provide assurance that its operations will generate positive cash flow or that it will be able to obtain equity or debt financing on acceptable terms, or at all. Further, the Company cannot provide assurance that it will be able to finance any expansion plans. +Expanding the Company’s brands into new markets and expanding its consumer-direct operations may be difficult and costly, and unsuccessful efforts to do so may adversely affect the Company’s brands and business. +As part of the Company’s growth strategy, it seeks to enhance the positioning of its brands, to extend its brands into complementary product categories, to expand geographically and to expand its consumer-direct operations. There can be no assurance that the Company will be able to successfully implement any or all of these growth strategies, and unsuccessful efforts to do so could have an adverse effect on its results of operations and financial position. +Part of the future growth of the Company’s consumer-direct operations is significantly dependent on the Company’s ability to operate stores in desirable locations at reasonable lease costs and to invest in eCommerce and mobile platforms that drive sales growth through these channels. The Company cannot be sure as to when or whether desirable brick and mortar locations will become available at reasonable costs or whether its eCommerce and mobile platforms will be successful. Further, if the Company is unable to renew or replace its existing store leases or enter into leases for new stores at attractive locations on favorable terms, or if the Company violates any of the terms of its current leases, its growth and profitability could be harmed. +An impairment of goodwill or other acquired intangibles could have an adverse material impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized, but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could materially affect the Company’s results of operations. +There is no assurance that the Company will be able to successfully implement the recently-announced Realignment Plan. +On July 9, 2014, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations ("the 2014 Plan"). As a part of the 2014 Plan, the Company intends to close certain retail stores over the next 12 months, consolidate certain consumer-direct support functions and implement certain other organizational changes. There can be no assurance that the Company will successfully implement the 2014 Plan within the estimated range of charges, within the estimated time frame, or that the Company will realize some or all of the estimated profitability improvements or other benefits from the 2014 Plan. There is also no assurance that the Company will be able to re-invest any future cost savings generated from the 2014 Plan into other initiatives or that any such investment will improve the Company’s operations. +Changes in government regulation may increase the Company’s costs of compliance and failure to comply with government regulations or other standards may adversely affect its brands and business. +The Company’s business is affected by changes in government and regulatory policies in the U.S. and in foreign jurisdictions. New requirements relating to product safety and testing and new environmental requirements, as well as changes in tax laws, duties, tariffs and quotas, could have a negative impact on the Company’s ability to produce and market footwear at competitive prices. Failure to comply with such regulations, as well as comply with ethical, social, product, labor and environmental standards, could also jeopardize the Company’s reputation and potentially lead to various adverse consumer actions, including boycotts. Any negative publicity about these types of concerns may reduce demand for the Company’s products. Damage to the Company’s reputation or loss of consumer confidence for any of these or other reasons could adversely affect the Company’s results of operations, as well as require additional resources to rebuild its reputation and brand value. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions +17 +Table of Contents +at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company is a defendant from time to time in lawsuits and regulatory actions relating to its business. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, financial position and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware Corporations law, as well as the Company’s certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change in control of the Company. These provisions are intended to provide the Company’s Board of Directors with continuity and also serves to encourage negotiations between the Board and any potential hostile acquiror. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions that may be beneficial to the Company's stockholders. +There are risks, including stock market volatility, inherent in owning the Company’s common stock. +The market price and volume of the Company’s common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on the Company’s financial position and results of operations, or a change in opinion in the market regarding the Company’s business prospects or other factors, many of which may be outside the Company’s immediate control. Changes in the amounts and frequency of share repurchases or dividends also could adversely affect the value of the Company’s common stock. +The Company’s indebtedness could adversely affect the Company. +The Company’s current indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement ("Credit Agreement") and has senior notes outstanding that may be traded in the public market. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control, and there can be no assurance that the Company will satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +Item 1B. +Unresolved Staff Comments +None. +Item 2. +Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 225,000 square feet in Rockford, Michigan, as well as a leased facility of approximately 147,000 square feet in Lexington, Massachusetts. The Company’s manufacturing operations are conducted at owned facilities in Michigan. The Company operates its U.S. distribution operations primarily through an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center in Howard City, Michigan, of approximately 460,000 square feet' a leased +18 +Table of Contents +distribution center in Cedar Springs, Michigan, of approximately 356,000 square feet; an owned distribution center in Rockford, Michigan, of approximately 305,000 square feet; and a leased distribution facility of approximately 200,000 square feet in Brookville, Ohio. +The Company also leases and owns various other offices and distribution centers throughout the U.S. to meet its operational requirements. In addition, the Company operates 417 retail stores through leases with various third-party landlords in the U.S. and Canada collectively occupying approximately 875,000 square feet. +The Company conducts its international operations in Canada, the United Kingdom, China, Hong Kong and continental Europe through leased distribution centers, offices and/or showrooms. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. +Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. The Company has considered facts related to legal and regulatory matters and advice of counsel handling these matters, and does not believe the ultimate resolution of such proceedings will have a material adverse effect on the Company’s financial position, results of operations, or cash flows. +Item 4. +Mine Safety Disclosures +Not applicable. +Supplemental Item. Executive Officers of the Registrant +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of February 28, 2015. The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, they serve at the pleasure of management. +Name +Age +Positions held with the Company +James A. Gabel +52 +President, Performance Group +Ted S. Gedra +59 +President, Heritage Group +Brendan M. Gibbons +39 +Vice President, General Counsel and Secretary +Donald T. Grimes +52 +Senior Vice President, Chief Financial Officer and Treasurer +Melissa A. Howell +48 +Senior Vice President, Global Human Resources +Michael Jeppesen +55 +President, Global Operations Group +Blake W. Krueger +61 +Chairman of the Board, Chief Executive Officer and President +Andrew Simister +49 +President, Lifestyle Group +James D. Zwiers +47 +Senior Vice President and President, International Group +James A. Gabel has served the Company as President, Performance Group since July 2014. From 2011 to 2014, he was President, Canada for Adidas AG, a wholesaler and retailer of footwear, apparel and accessories. From 2008 to 2011, he was President, Reebok, North America. +Ted S. Gedra has served the Company as President, Heritage Group since 2011. He served as President of the Wolverine Footwear Group from 2006 to 2010. +Brendan M. Gibbons has served the Company as Vice President, General Counsel and Secretary since April 2014. From 2009 to October 2013, he served as Senior Vice President of Legal and Corporate Affairs, General Counsel, and Secretary for Carter’s Inc., a global branded marketer of apparel for babies and young children. +Donald T. Grimes has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since May 2008. +Melissa A. Howell has served the Company as Senior Vice President, Global Human Resources since October 2014. From February 2013 to May 2014, she served as Senior Vice President, Global Human Resources for General Motors, one of the world’s largest automobile manufacturers. She served General Motors as Executive Director, North America Human Resources from 2011 to 2013 and as Human Resources Director, Global Sales and Marketing from 2009 to 2011. +19 +Table of Contents +Michael Jeppesen has served the Company as President, Global Operations Group since January 2012. From 2005 to 2011, he was Senior Vice President, Design and Sourcing, for Collective Brands, Inc., a wholesaler and retailer of footwear and related accessories. +Blake W. Krueger has served the Company as Chairman since January 2010 and as Chief Executive Officer and President since April 2007. +Andrew Simister has served the Company as President, Lifestyle Group since July 2014. From 1996 to 2013, he was Global President, Lacoste Footwear, a footwear wholesaler, for Pentland Brands PLC. +James D. Zwiers has served the Company as Senior Vice President and President, International Group since June 2014. From January 2013 to June 2014, he served as Senior Vice President and President, Performance Group. From March 2009 until January 2013, he served as Senior Vice President and President, Outdoor Group, which was realigned into the Performance Group. +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” On July 11, 2013, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock dividend that was paid on November 1, 2013 to stockholders of record on October 1, 2013. All share and per share data within this Form 10-K have been adjusted for all periods presented to reflect the stock split. The following table shows the high and low stock prices on the New York Stock Exchange and dividends declared by quarter for fiscal years 2014 and 2013 . The number of stockholders of record on February 27, 2015 , was 1,758. +Fiscal 2014 +Fiscal 2013 +Stock price +High +Low +High +Low +First quarter +$ +34.10 +$ +25.13 +$ +23.19 +$ +19.20 +Second quarter +30.00 +25.06 +27.13 +21.42 +Third quarter +27.47 +24.00 +30.18 +24.72 +Fourth quarter +30.75 +24.21 +33.91 +27.54 +Fiscal Year +Cash dividends declared per share +2014 +2013 +First quarter +$ +0.06 +$ +0.06 +Second quarter +0.06 +0.06 +Third quarter +0.06 +0.06 +Fourth quarter +0.06 +0.06 +A quarterly dividend of $0.06 per share was declared on February 12, 2015. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2015 . +The Company’s Credit Agreement and senior notes indenture impose certain restrictions on the Company’s ability to pay cash dividends. The Company may not pay a dividend if the Company is in default under the Credit Agreement or the indenture, or if payment of the dividend would cause a default under the Credit Agreement or the indenture, including the Company’s covenant to meet prescribed leverage ratios. +See Item 12: "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for information with respect to the Company’s equity compensation plans. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +20 +Table of Contents +Five-Year Cumulative Total Return Summary +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2014 . +Issuer Purchases of Equity Securities +Period +Total Number of Shares Purchased +Average Price Paid per Share +Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs +Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 1 (September 7, 2014 to October 4, 2014) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +200,000,000 +Employee Transactions (2) +2,621 +26.77 +Period 2 (October 5, 2014 to November 1, 2014) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +200,000,000 +Employee Transactions (2) +11,844 +25.65 +Period 3 (November 2, 2014 to November 29, 2014) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +200,000,000 +Employee Transactions (2) +40,036 +27.41 +Period 4 (November 30, 2014 to January 3, 2015) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +200,000,000 +Employee Transactions (2) +7,083 +29.55 +Total for Fourth Quarter ended January 3, 2015 +Common Stock Repurchase Program (1) +— +$ +— +— +$ +200,000,000 +Employee Transactions (2) +61,584 +27.29 +(1) +The Company’s Board of Directors approved a common stock repurchase program on February 12, 2014. This program authorizes the repurchase of up to $200 million of common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement. +(2) +Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +21 +Table of Contents +Item 6. +Selected Financial Data +Five-Year Operating and Financial Summary (1) +Fiscal Year +(In millions, except per share data) +2014 +2013 +2012 (4) +2011 +2010 +Summary of Operations +Revenue +$ +2,761.1 +$ +2,691.1 +$ +1,640.8 +$ +1,409.1 +$ +1,248.5 +Net earnings attributable to Wolverine World Wide, Inc. +133.1 +100.4 +80.7 +123.3 +104.5 +Per share of common stock: +Basic net earnings (2)(3) +$ +1.33 +$ +1.01 +$ +0.84 +$ +1.27 +$ +1.08 +Diluted net earnings (2)(3) +1.30 +0.99 +0.81 +1.24 +1.06 +Cash dividends declared (3) +0.24 +0.24 +0.24 +0.24 +0.22 +Financial Position at Year-End +Total assets +$ +2,504.5 +$ +2,622.2 +$ +2,614.4 +$ +851.7 +$ +786.6 +Debt +900.8 +1,150.0 +1,250.0 +11.5 +1.0 +(1) +This summary should be read in conjunction with the consolidated financial statements and the related notes, which are included in Item 8 of this Annual Report on Form 10-K. +(2) +Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for nonvested restricted common stock. Diluted earnings per share assume the exercise of dilutive stock options and the vesting of all outstanding restricted stock. +(3) +All per share data has been presented to reflect the two-for-one stock split in the form of a stock dividend paid on November 1, 2013 to stockholders of record on October 1, 2013. +(4) +The operating results for PLG are included in the Company’s consolidated results of operations beginning October 9, 2012. +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, manufacturer and marketer of branded footwear, apparel and accessories. The Company’s mission statement is “ we empower, engage and inspire our consumers - every step of the way .” The Company seeks to fulfill this mission by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s portfolio consists of 15 brands that are marketed in approximately 200 countries and territories at January 3, 2015 , including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe. In other regions (Asia Pacific, Latin America, portions of Europe, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At January 3, 2015 , the Company operated 417 retail stores in the U.S. and Canada and 64 consumer-direct websites. +2014 FINANCIAL OVERVIEW +• +Revenue for fiscal 2014 was $ 2,761.1 million , an increase of 2.6 % compared to fiscal 2013. Foreign exchange had a minimal impact on full year revenue growth. High single-digit growth from the Heritage Group and mid single-digit growth from the Performance Group was partially offset by expected low single-digit revenue decline from the Lifestyle Group. +• +Gross margin for fiscal 2014 was 39.3 %, a decrease of 30 basis points from fiscal 2013. The gross margin decline was driven primarily by a negative mix shift in international markets, the impact of retail store close-out activities and incremental expense related to the last-in, first-out ("LIFO") method. +• +Operating expenses as a percentage of revenue decreased to 31.0 % for fiscal 2014 compared to 32.4 % for fiscal 2013. In addition to the higher revenues in fiscal 2014, the reduction in operating expenses as a percent of revenues was driven by lower pension expense, lower acquisition-related costs and lower incentive compensation expenses, which were partially offset by higher restructuring costs, higher selling expenses and higher brand building expenses. +22 +Table of Contents +• +The effective tax rate in fiscal 2014 was 26.2 % compared to 20.9 % in fiscal 2013. The higher effective tax rate in fiscal 2014 reflects a greater proportion of income generated in higher tax jurisdictions, primarily the U.S., compared to 2013. In addition, the 2013 tax rate reflects higher acquisition-related integration costs that are deductible primarily in high statutory tax rate jurisdictions. +• +Inventory decreased 3.3% versus the prior year. +• +Accounts receivable decreased 21.5% due primarily to a three-year agreement with a financial institution executed during the fourth quarter of fiscal 2014, to sell selected trade accounts receivable on a recurring, nonrecourse basis, which generated incremental operating cash flows of approximately $65.5 million during fiscal 2014. +• +Cash provided by operating activities was $314.6 million during fiscal 2014, which allowed the Company to make payments on its long-term debt of $249.8 million. +• +The Company declared cash dividends of $ 0.24 per share, on a post-stock split basis, in both fiscal 2014 and fiscal 2013. +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Annual Report. +Fiscal Year +Percent Change vs. Prior Year +(In millions, except per share data) +2014 +2013 +2012 +2014 +2013 +Revenue +$ +2,761.1 +$ +2,691.1 +$ +1,640.8 +2.6 +% +64.0 +% +Cost of goods sold +1,673.8 +1,619.0 +1,008.1 +3.4 +60.6 +Acquisition-related transaction and integration costs +— +— +4.5 +— +(100.0 +) +Restructuring costs +1.0 +7.6 +— +(86.8 +) +— +Gross profit +1,086.3 +1,064.5 +628.2 +2.0 +69.5 +Selling, general and administrative expenses +815.2 +830.0 +482.0 +(1.8 +) +72.2 +Acquisition-related transaction and integration costs +15.2 +41.5 +32.5 +(63.4 +) +27.7 +Restructuring costs +26.0 +0.7 +— +3,614.3 +— +Operating profit +229.9 +192.3 +113.7 +19.6 +69.1 +Interest expense, net +45.4 +52.0 +14.0 +(12.7 +) +271.4 +Acquisition-related interest expense +— +— +5.2 +— +(100.0 +) +Debt extinguishment costs +1.3 +13.1 +— +(90.1 +) +— +Other expense (income), net +1.7 +(0.5 +) +0.3 +440.0 +(266.7 +) +Earnings before income taxes +181.5 +127.7 +94.2 +42.1 +35.6 +Income tax expense +47.6 +26.7 +13.4 +78.3 +99.3 +Net earnings +133.9 +101.0 +80.8 +32.6 +25.0 +Less: net earnings attributable to noncontrolling interest +0.8 +0.6 +0.1 +33.3 +500.0 +Net earnings attributable to Wolverine World Wide, Inc. +$ +133.1 +$ +100.4 +$ +80.7 +32.6 +% +24.4 +% +Diluted earnings per share +$ +1.30 +$ +0.99 +$ +0.81 +31.3 +% +22.2 +% +REVENUE +Revenue was $2,761.1 million for fiscal 2014, representing an increase of 2.6% versus the prior year's revenue of $2,691.1 million . High single-digit growth from the Heritage Group and mid single-digit growth from the Performance Group was partially offset by expected low single-digit revenue decline from the Lifestyle Group. Changes in foreign exchange rates decreased reported revenue by $6.2 million in fiscal 2014. International revenue represented 27.9%, 26.2% and 34.2% of total reported revenues in fiscal years 2014, 2013 and 2012, respectively. The decrease in international revenue in fiscal 2013 as a percent of total revenue was driven by the inclusion of the PLG business, which skews more to the U.S. than did the Company's business prior to the PLG acquisition. +Revenue for fiscal 2013 increased $1,050.3 million from fiscal 2012, to $2,691.1 million. The full year inclusion of the PLG business, acquired in the fourth quarter of fiscal 2012, drove the majority of the increase. Changes in foreign exchange rates decreased reported revenue by $1.7 million in fiscal 2013. +23 +Table of Contents +GROSS MARGIN +For fiscal 2014, the Company’s gross margin was 39.3 % compared to 39.6 % in fiscal 2013. The decrease was driven by higher product costs (30 basis points), a negative mix shift in international markets (30 basis points), incremental LIFO expense (10 basis points), impact of inventory liquidation related to retail store closures (10 basis points) and negative foreign currency impact (10 basis points), which were partially offset by select selling price increases (60 basis points). +For fiscal 2013, the Company’s gross margin was 39.6% compared to 38.3% in fiscal 2012. The increase was driven by favorable channel mix (150 basis points), higher selling prices (80 basis points) and lower LIFO expense (20 basis points), which were partially offset by higher product costs (70 basis points), restructuring costs (40 basis points) and negative foreign exchange impact (20 basis points). +OPERATING EXPENSES +Operating expenses decreased $ 15.8 million in fiscal 2014, to $ 856.4 million . Operating expenses were favorably impacted by lower acquisition-related integration costs associated with the integration of the PLG business ($26.3 million), lower pension expense ($25.4 million) and lower incentive compensation expenses ($5.8 million). Partially offsetting these declines were incremental restructuring costs ($25.3 million), incremental selling expenses ($6.5 million) and incremental brand building expense ($8.8 million). Changes in foreign exchange rates had a $1.8 million favorable impact on reported operating expenses. +Operating expenses increased $357.7 million in fiscal 2013 to $872.2 million. Approximately $9.0 million of the increase relates to higher acquisition-related integration costs associated with the integration of the PLG business. Incremental compensation expense ($13.1 million), incremental amortization expense related to purchase price accounting for the PLG acquisition ($11.9 million), incremental pension expense ($9.4 million) and incremental brand building investments ($6.0 million) also contributed to the increase in operating expenses. Changes in foreign exchange rates had a $0.7 million favorable impact on reported operating expenses. The remainder of the operating expense increase was due to the full-year inclusion of the PLG business within the Company’s results. +INTEREST, OTHER AND TAXES +Net interest expense was $ 45.4 million in fiscal 2014 compared to $52.0 million in fiscal 2013. The decrease reflects the benefits of the amendment to the Credit Agreement executed in the fourth quarter of fiscal 2013 and lower average principal balances. +Net interest expense was $52.0 million in fiscal 2013 compared to $19.2 million in fiscal 2012. Approximately $4.3 million of the increase was due to the amortization of deferred financing costs included within interest expense. The remainder of the increase in fiscal 2013 was due to a full year of interest expense on debt incurred to finance the PLG acquisition compared with only a partial year of interest expense in fiscal 2012. +The Company incurred $1.3 million of debt extinguishment costs during the fourth quarter of fiscal 2014 due to accelerating the amortization of capitalized deferred financing fees in relation to debt repayments. The Company incurred $13.1 million of debt extinguishment costs during the fourth quarter of fiscal 2013 in connection with the refinancing of the Company's debt. These costs represent a write-off of previously capitalized deferred financing fees. +The Company’s effective tax rates in fiscal 2014 and fiscal 2013 were 26.2 % and 20.9 %, respectively. The higher effective tax rate in fiscal 2014 reflects a greater proportion of income generated in higher tax jurisdictions, primarily the U.S., compared to 2013. In addition, the 2013 tax rate reflects higher acquisition-related integration costs that are deductible primarily in high statutory tax rate jurisdictions. +The Company’s effective tax rates in fiscal 2013 and fiscal 2012 were 20.9% and 14.2%, respectively. The lower effective tax rate in fiscal 2012 reflects the non-recurring benefits of a favorable court decision in the first half of fiscal 2012 in a foreign tax jurisdiction supporting the Company’s long-term global tax planning strategies. The tax rate in fiscal 2013 also reflects the deductibility of acquisition-related transaction and integration costs in primarily high statutory tax rate jurisdictions. +The Company maintains management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that are generally lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings is generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. The Company has not provided for U.S. taxes for earnings generated in foreign jurisdictions because it intends to reinvest these earnings indefinitely outside the U.S. However, if certain foreign earnings previously treated as permanently reinvested are repatriated, the additional U.S. tax liability could have a material adverse effect on the Company’s results of operations and financial position. +24 +Table of Contents +REPORTABLE OPERATING SEGMENTS +The Company has three reportable operating segments. The Company’s operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The Company’s reportable operating segments are: +• +Lifestyle Group , consisting of Sperry Top-Sider ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Chaco ® footwear, Patagonia ® footwear and Cushe ® footwear; and +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear and HyTest ® safety footwear. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including acquisition-related transaction and integration costs and restructuring costs. +The reportable operating segment results for fiscal years 2014, 2013 and 2012 are as follows: +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2014 +2013 +Change +2013 +2012 +Change +Revenue: +Lifestyle Group +$ +1,059.3 +$ +1,086.6 +$ +(27.3 +) +(2.5 +)% +$ +1,086.6 +$ +309.6 +$ +777.0 +251.0 +% +Performance Group +990.7 +945.8 +44.9 +4.7 +945.8 +674.6 +271.2 +40.2 +Heritage Group +607.0 +567.4 +39.6 +7.0 +567.4 +563.9 +3.5 +0.6 +Other +104.1 +91.3 +12.8 +14.0 +91.3 +92.7 +(1.4 +) +(1.5 +) +Total +$ +2,761.1 +$ +2,691.1 +$ +70.0 +2.6 +% +$ +2,691.1 +$ +1,640.8 +$ +1,050.3 +64.0 +% +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2014 +2013 +Change +2013 +2012 +Change +Operating profit (loss): +Lifestyle Group +$ +130.2 +$ +168.2 +$ +(38.0 +) +(22.6 +)% +$ +168.2 +$ +44.6 +$ +123.6 +277.1 +% +Performance Group +197.6 +179.8 +17.8 +9.9 +179.8 +128.4 +51.4 +40.0 +Heritage Group +95.4 +85.7 +9.7 +11.3 +85.7 +83.5 +2.2 +2.6 +Other +3.9 +0.2 +3.7 +1,850.0 +0.2 +(1.1 +) +1.3 +118.2 +Corporate +(197.2 +) +(241.6 +) +44.4 +18.4 +(241.6 +) +(141.7 +) +(99.9 +) +(70.5 +) +Total +$ +229.9 +$ +192.3 +$ +37.6 +19.6 +% +$ +192.3 +$ +113.7 +$ +78.6 +69.1 +% +Further information regarding the reportable operating segments can be found in Note 15 to the consolidated financial statements. +Lifestyle Group +The Lifestyle Group’s revenue decreased $ 27.3 million , or 2.5 %, in fiscal 2014 compared to fiscal 2013. The negative growth rate was driven by a mid single-digit revenue decline for Sperry Top-Sider ® , a high single-digit decline for Hush Puppies ® and a low single-digit decline for Stride Rite ® . The Sperry Top-Sider ® decline was driven by decreases in the domestic boat shoe category and a distribution channel realignment in the family channel, partially offset by sales from new retail stores. The Hush Puppies ® decline was due to strategic reductions in the U.S. department store channel, while the Company believes the Stride Rite ® decline was impacted by lower retail store traffic and negative weather trends. These declines were partially offset by growth in the high teens for Keds ® , driven by continued marketing investment in support of the brand. +The Lifestyle Group’s operating profit decreased $ 38.0 million , or 22.6 %, in fiscal 2014 compared to fiscal 2013. The decrease was due primarily to the revenue decline and negative product mix for Sperry Top-Sider ® and a lower gross margin for Stride Rite ® due to retail store close-out activities. Partially offsetting these declines was a higher operating profit for Keds ® due to higher revenues. +The Lifestyle Group’s revenue increased $777.0 million, or 251.0%, in fiscal 2013 compared to fiscal 2012. The revenue increase in fiscal 2013 was due to the full year inclusion of the Sperry Top-Sider ® , Stride Rite ® and Keds ® brands. The Lifestyle Group’s operating profit increased $123.6 million, or 277.1%, in fiscal 2013 compared to fiscal 2012. Hush Puppies ® operating profit increased at a growth rate in the mid teens due primarily to a mid single-digit reduction in selling, general and administrative costs. +25 +Table of Contents +The remainder of the operating profit increase in fiscal 2013 was due to the full year inclusion of the Sperry Top-Sider ® , Stride Rite ® and Keds ® brands. +Performance Group +The Performance Group’s revenue increased $ 44.9 million , or 4.7 %, in fiscal 2014 compared to fiscal 2013. The positive growth rate was driven by high single-digit growth from Saucony ® , low single-digit growth from Merrell ® and growth in the mid twenties from Chaco ® . Saucony ® benefited from growth in its franchise products and the lifestyle-oriented Originals product, Merrell ® benefited from growth in its Performance Outdoor product category and Chaco ® experienced increased demand for its core sandal product. +The Performance Group’s operating profit increased $ 17.8 million , or 9.9 %, in fiscal 2014 compared to fiscal 2013. The operating profit increase was due primarily to the revenue increases for Merrell ® , Saucony ® and Chaco ® and gross margin expansion from Merrell ® and Chaco ® due to a reduction in low margin close-out sales. +The Performance Group’s revenue increased $271.2 million, or 40.2%, in fiscal 2013 compared to fiscal 2012. The increase was due partially to the Merrell ® brand's mid single-digit revenue increase. The remainder of the increase was due to the full year inclusion of the Saucony ® brand. +The Performance Group’s operating profit increased $51.4 million, or 40.0%, in fiscal 2013 compared to fiscal 2012. The Merrell ® brand experienced operating income growth in the low single-digits. The remainder of the increase was due to the full year inclusion of the Saucony ® brand. +Heritage Group +The Heritage Group’s revenue increased $ 39.6 million , or 7.0 %, in fiscal 2014 compared to fiscal 2013. The positive growth rate was driven by high single-digit growth from Wolverine ® , high teen growth from Cat ® and growth in the mid teens from Harley-Davidson ® . Wolverine ® benefited from growth in its Work, Outdoor and Heritage product collections. Cat ® benefited from strong global demand and a higher mix of top-line international revenue. Partially offsetting these increases was a revenue decline in the mid teens for Sebago ® due to poor sell through of key product categories. +The Heritage Group’s operating profit increased $ 9.7 million , or 11.3 %, in fiscal 2014 compared to fiscal 2013. The operating profit increase was due primarily to the revenue increases for Wolverine ® , Cat ® and Harley-Davidson ® . +The Heritage Group’s revenue increased $3.5 million, or 0.6%, in fiscal 2013 compared to fiscal 2012. The Heritage Group’s operating profit increased $2.2 million, or 2.6%, in fiscal 2013 compared to fiscal 2012. +Corporate +Corporate expenses decreased $44.4 million in fiscal 2014 compared to fiscal 2013. Corporate expenses were favorably impacted by lower acquisition-related integration costs associated with the integration of the PLG business ($26.3 million), lower pension expense ($25.4 million) and incentive compensation expenses ($5.8 million), which were partially offset by incremental restructuring costs ($18.7 million). +Corporate expenses increased $99.9 million in fiscal 2013 compared to fiscal 2012. The drivers of the increase include $48.1 million of corporate expenses related to the full year inclusion of the acquired PLG business. The Company also incurred an incremental $4.5 million of acquisition-related transaction and integration costs, $7.6 million of restructuring costs related to its manufacturing operations in the Dominican Republic, incremental incentive compensation expenses of $13.1 million and incremental pension expense of $9.4 million. The remainder of the increase was due to various incremental corporate expenses due to the larger size and complexity of the Company. +26 +Table of Contents +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) +2014 +2013 +2012 +Cash and cash equivalents +$ +223.8 +$ +214.2 +$ +171.4 +Debt +900.8 +1,150.0 +1,250.0 +Available revolving credit facility (1) +196.4 +196.5 +198.1 +Cash provided by operating activities +314.6 +202.3 +91.6 +Cash used in investing activities +(34.8 +) +(44.7 +) +(1,246.1 +) +Cash (used in) provided by financing activities +(270.4 +) +(112.8 +) +1,183.4 +Additions to property, plant and equipment +30.0 +41.7 +14.9 +Depreciation and amortization +53.3 +56.2 +27.7 +(1) +Amounts are net of both borrowings and outstanding standby letters of credit in accordance with the terms of the current revolving credit facility. +Liquidity +Cash and cash equivalents of $ 223.8 million as of January 3, 2015 were $9.6 million higher compared to December 28, 2013. In addition, the Company had $ 196.4 million available under a revolving credit agreement (the “Revolving Credit Facility”) as of January 3, 2015. +At January 3, 2015, the Company had $ 208.1 million of cash and cash equivalents located in foreign jurisdictions, in which the Company intends to permanently reinvest these funds. The Company had outstanding standby letters of credit under the Revolving Credit Facility of approximately $3.6 million at January 3, 2015. +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Higher earnings performance during fiscal 2014 along with the sale of certain accounts receivable drove the increase in cash from operations compared to fiscal 2013. During fiscal 2014, a decrease in net working capital represented a source of cash of $ 86.9 million . Working capital balances were favorably impacted by a decrease in accounts receivable of $ 76.5 million due primarily to the cash inflow of $65.5 million related to the sales of certain accounts receivable described above, partially offset by an increase in other operating assets of $ 17.8 million . An increase in accounts payable and other operating liabilities represented a source of cash of $ 16.2 million and $ 9.1 million , respectively, in fiscal 2014. +During fiscal 2013, an increase in net working capital represented a use of cash of $ 2.5 million . Working capital balances were negatively impacted by an increase in accounts receivable of $41.3 million, which was partially offset by a decrease in inventory and other operating assets of $35.1 million and $12.8 million, respectively. A decrease in accounts payable represented a use of cash of $26.5 million, which was partially offset by an increase of $17.4 million from other operating liabilities. +Investing Activities +The Company made capital expenditures of $ 30.0 million in fiscal 2014 compared to $ 41.7 million in fiscal 2013. The decrease in capital expenditures during fiscal 2014 was primarily due to fewer new retail stores being opened. The majority of the Company's capital expenditures in both years were for retail store investments, information system enhancements and building improvements. +The Company made capital expenditures of $41.7 million in fiscal 2013 compared to $14.9 million in fiscal 2012. The increase in capital expenditures was due to the acquisition of PLG in the fourth quarter of fiscal 2012 and the resulting larger scale and scope of the Company. Included in investing activities in fiscal 2013 were net cash proceeds of $2.8 million from the sale of a distribution facility acquired as part of the PLG acquisition. The Company leases machinery, equipment and certain warehouse, office and retail store space under operating lease agreements that expire at various dates through 2023. +Financing Activities +On October 9, 2012, the Company entered into a credit agreement with a bank syndicate in connection with the PLG acquisition. The Credit Agreement provided the Company with two term loans (a “Term Loan A Facility” and a “Term Loan B Facility”) and the Revolving Credit Facility. On October 10, 2013, the Company amended the Credit Agreement (the "Amendment") and paid off the outstanding balance of the Term Loan B Facility while increasing the principal balance of the Term Loan A Facility to $775.0 million. The Amendment provided for a lower effective interest rate on term loan debt and a one-year extension on both +27 +Table of Contents +the Term Loan A Facility and Revolving Credit Facility. In addition, the Amendment provided for increased debt capacity limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $1,350.0 million. The Company incurred $1.3 million of debt extinguishment costs during the fourth quarter of fiscal 2014 due to accelerating the amortization of capitalized deferred financing fees in relation to debt repayments. The Company incurred $13.1 million of debt extinguishment costs during the fourth quarter of fiscal 2013 in connection with the refinancing of the Company's debt. These costs represent a write-off of previously capitalized deferred financing fees. +On October 9, 2012, the Company issued $375.0 million of senior notes, which bear interest at a 6.125% fixed rate and are due in 2020. During the third quarter of fiscal 2013, the Company exchanged the senior notes (the "Public Bonds"). Related interest payments are due semi-annually. The Public Bonds are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company used the borrowings under the term loan facilities, together with the net proceeds from the senior notes and cash on hand, to finance the PLG acquisition, repay any amounts outstanding under prior indebtedness, terminate its prior revolving credit facility and provide for the working capital needs of the Company, including the payment of transaction expenses in connection with the acquisition. As of January 3, 2015, the Company was in compliance with all covenants and performance ratios. +The Company's debt at January 3, 2015 was $ 900.8 million compared to $ 1,150.0 million at December 28, 2013. The net decrease in debt was primarily a result of principal payments on the Term Loan A Facility, including $200.0 million of voluntary debt payments during fiscal 2014. The decrease in debt during fiscal 2013 was primarily a result of principal payments, including $85.0 million of voluntary debt payments. The Company had outstanding standby letters of credit under the Revolving Credit Facility totaling approximately $3.6 million at January 3, 2015. +During fiscal 2014, the Company entered into a $5.0 million (or the equivalent amount in Chinese Renminbi) revolving line of credit. The facility is uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender. As of January 3, 2015, there were no borrowings against this facility. +Subsequent to the end of fiscal 2014, the Company made voluntary debt payments of $58.0 million on the Term Loan A Facility. +Cash flow from operating activities, along with borrowings on the Revolving Credit Facility, if any, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flows from operating activities are expected to be used to reduce debt, fund internal and external growth initiatives, purchase property, plant and equipment, pay dividends or repurchase the Company’s common stock. +On February 12, 2014, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of up to $200.0 million in common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Credit Agreement. The Company did not repurchase any shares of Company common stock in fiscal 2014 or fiscal 2013 under a stock repurchase program and repurchased $2.4 million of Company stock during fiscal 2012. In addition to the share repurchase program activity, the Company acquired $ 10.5 million and $ 0.8 million of shares in fiscal years 2014 and 2013, respectively, in connection with employee transactions related to stock incentive plans. +On July 11, 2013, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock dividend which was paid on November 1, 2013 to stockholders of record on October 1, 2013. +The Company declared cash dividends of $0.24 per share in fiscal years 2014, 2013 and 2012. Dividends paid totaled $ 24.0 million , $ 23.7 million and $ 23.6 million , for fiscal years 2014, 2013 and 2012, respectively. +NEW ACCOUNTING STANDARDS +Refer to Note 2 of the consolidated financial statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES +The preparation of the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +28 +Table of Contents +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s consolidated financial statements. +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances for the relevant periods may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, an adjustment to net revenues would be recorded in the period the determination was made. +Accounts Receivable +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers' failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. Historically, losses have been within the Company’s expectations. Adjustments to these estimates may be required if the financial condition of the Company’s customers were to change. If the Company were to determine adjustments to the allowance for uncollectible accounts were appropriate, the Company would record either an increase or decrease to general and administrative expenses in the period in which the Company made such a determination. +Inventory +The Company values its inventory at the lower of cost or market. Cost is determined by the LIFO method for all domestic raw materials and work-in-process inventories and certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations.The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or market for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated market value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Acquisitions +The Company accounts for acquired businesses using the purchase method of accounting. Under the purchase method, the Company’s consolidated financial statements include the operations of an acquired business starting from the date of acquisition. In addition, the assets acquired and liabilities assumed must be recorded at the date of acquisition at their respective estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired recorded as goodwill. +Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. Accordingly, the Company typically obtains the assistance of third-party valuation specialists for significant items. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management. +The Company typically uses an income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, the economic barriers to entry and the discount +29 +Table of Contents +rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions. +Determining the useful life of an intangible asset also requires judgment. Certain intangibles are expected to have indefinite lives based on their history and the Company’s plans to continue to support and build the acquired brands. Other acquired intangible assets (e.g., certain patents, customer relationships and technologies) are expected to have determinable useful lives. The Company’s assessment as to those intangibles that have an indefinite life and those that have a determinable life is based on a number of factors, including competitive environment, market share, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. The Company’s estimates of the useful lives of determinable-lived intangibles are based primarily on these same factors. All of the Company’s acquired technology and customer-related intangibles are expected to have determinable useful lives. The costs of determinable-lived intangibles are amortized to expense over their estimated lives. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company performs the second step of the goodwill impairment test to determine the impairment charge, if any. The second step involves a hypothetical allocation of the estimated fair value of the reporting unit to its net tangible and intangible assets (excluding goodwill) as if the reporting unit were newly acquired, which results in an implied fair value of the goodwill. The amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. The Company did not recognize any impairment charges for goodwill or indefinite-lived intangible assets during the fiscal years 2014, 2013 or 2012, as the annual impairment testing indicated that all reporting unit goodwill and indefinite-lived intangible asset fair values exceeded their respective carrying values. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that are generally lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. The Company has not provided for U.S. taxes for earnings generated in foreign jurisdictions because it plans to reinvest these earnings indefinitely outside the U.S. However, if certain foreign earnings previously treated as permanently reinvested are repatriated, the additional U.S. tax liability could have a material adverse effect on the Company’s results of operations and financial position. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +30 +Table of Contents +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the fiscal year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent fiscal year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plan’s expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 4.37 % at January 3, 2015 compared to 5.26% at December 28, 2013. Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 7.50% for fiscal 2015. This determination is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Stock-Based Compensation +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB") Accounting Standards Codification ("ASC") Topic 718, Compensation – Stock Compensation ("ASC 718"). The Company utilizes the Black-Scholes model, which requires the input of subjective assumptions to calculate the amount to expense in the consolidated statements of operations related to stock options granted to employees. These assumptions include estimating (a) the length of time employees will retain their vested stock options before exercising them (“expected term”), (b) the volatility of the Company’s common stock price over the expected term and (c) the number of options that are expected to be forfeited. Changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense amounts recognized in the consolidated statements of operations. +OFF-BALANCE SHEET ARRANGEMENTS +The Company has no off-balance sheet arrangements as of January 3, 2015 . +CONTRACTUAL OBLIGATIONS +As of January 3, 2015 , the Company had the following payments under contractual obligations due by period: +(In millions) +Total +Less than +1 year +1-3 years +3-5 years +More than +5 years +Operating leases +$ +323.1 +$ +50.9 +$ +84.1 +$ +62.3 +$ +125.8 +Capital lease +0.8 +0.1 +0.2 +0.2 +0.3 +Debt obligations (1) +1,065.1 +80.4 +177.6 +414.0 +393.1 +Purchase obligations (2) +449.1 +449.1 +— +— +— +Deferred compensation +2.8 +0.5 +0.9 +0.8 +0.6 +Supplemental Executive Retirement Plan +40.4 +3.7 +8.0 +8.0 +20.7 +Dividends declared +6.2 +6.2 +— +— +— +Minimum royalties +1.8 +1.8 +— +— +— +Minimum advertising +26.4 +8.7 +5.5 +5.9 +6.3 +Total (3) +$ +1,915.7 +$ +601.4 +$ +276.3 +$ +491.2 +$ +546.8 +(1) +Includes principal and interest payments on the Company’s debt, net of the impact of the interest rate swap. Estimated future interest payments on outstanding debt obligations are based on interest rates as of January 3, 2015 . Actual cash outflows may differ significantly due to changes in underlying interest rates. See Note 10 to the consolidated financial statements for additional information on the Company's interest rate swap. +31 +Table of Contents +(2) +Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) +The Company adopted FASB ASC Topic 740, Income Taxes, on December 31, 2006. The total amount of unrecognized tax benefits on the consolidated balance sheet at January 3, 2015 is $ 8.6 million . At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, our financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. +Under the provisions of FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom and Colombia where the functional currencies are primarily the Canadian dollar, euro, British pound and Colombian peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. At January 3, 2015 and December 28, 2013 , the Company had outstanding forward currency exchange contracts to purchase U.S. dollars in the amounts of $141.6 million and $129.1 million , with maturities ranging up to 336 and 364 days, respectively. +Through the end of fiscal 2014 , the Company had sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies, but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company currently does not hedge these net investments. At January 3, 2015 , a stronger U.S. dollar compared to foreign currencies versus fiscal 2013 decreased the value of these investments in net assets by $ 17.4 million . At December 28, 2013 , a stronger U.S. dollar compared to foreign currencies versus fiscal 2012 decreased the value of these investments in net assets by $ 5.4 million . +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on borrowings used to finance acquisitions and working capital requirements. The Company’s total variable-rate debt was $ 525.2 million at the end of fiscal 2014 and the Company held one interest rate swap agreement denominated in U.S. dollars that effectively converts $ 405.4 million of its variable-rate debt to fixed-rate debt. The interest rate swap derivative instrument is held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be $ 0.6 million at the end of fiscal 2014 and was recorded within other assets. As of January 3, 2015 , the weighted-average interest rate on the Company’s variable-rate debt was approximately 1.9%. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $1.2 million. +The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +32 +Table of Contents +Item 8. +Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +34 +Consolidated Statements of Comprehensive Income +35 +Consolidated Balance Sheets +36 +Consolidated Statements of Cash Flows +38 +Consolidated Statements of Stockholders' Equity +39 +Note 1. Summary of Significant Accounting Policies +41 +Note 2. New Accounting Standards +43 +Note 3. Earnings Per Share +44 +Note 4. Goodwill and Other Intangibles +45 +Note 5. Accounts Receivable +46 +Note 6. Inventories +46 +Note 7. Debt +47 +Note 8. Accumulated Other Comprehensive Income (Loss) +48 +Note 9. Property, Plant and Equipment +49 +Note 10. Financial Instruments and Risk Management +49 +Note 11. Stock-Based Compensation +50 +Note 12. Retirement Plans +54 +Note 13. Income Taxes +57 +Note 14. Litigation and Contingencies +59 +Note 15. Business Segments +60 +Note 16. Restructuring Activities +62 +Note 17. Business Acquisitions +63 +Note 18. Subsidiary Guarantors of the Public Bonds +65 +Note 19. Quarterly Results of Operations (Unaudited) +76 +Reports of Independent Registered Public Accounting Firm +77 +33 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) +2014 +2013 +2012 +Revenue +$ +2,761.1 +$ +2,691.1 +$ +1,640.8 +Cost of goods sold +1,673.8 +1,619.0 +1,008.1 +Acquisition-related transaction and integration costs +— +— +4.5 +Restructuring costs +1.0 +7.6 +— +Gross profit +1,086.3 +1,064.5 +628.2 +Selling, general and administrative expenses +815.2 +830.0 +482.0 +Acquisition-related transaction and integration costs +15.2 +41.5 +32.5 +Restructuring costs +26.0 +0.7 +— +Operating profit +229.9 +192.3 +113.7 +Other expenses: +Interest expense, net +45.4 +52.0 +14.0 +Acquisition-related interest expense +— +— +5.2 +Debt extinguishment costs +1.3 +13.1 +— +Other expense (income), net +1.7 +(0.5 +) +0.3 +Total other expenses +48.4 +64.6 +19.5 +Earnings before income taxes +181.5 +127.7 +94.2 +Income taxes +47.6 +26.7 +13.4 +Net earnings +133.9 +101.0 +80.8 +Less: net earnings attributable to noncontrolling interest +0.8 +0.6 +0.1 +Net earnings attributable to Wolverine World Wide, Inc. +$ +133.1 +$ +100.4 +$ +80.7 +Net earnings per share (see Note 3): +Basic +$ +1.33 +$ +1.01 +$ +0.84 +Diluted +$ +1.30 +$ +0.99 +$ +0.81 +See accompanying notes to consolidated financial statements. +34 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income +Fiscal Year +(In millions) +2014 +2013 +2012 +Net earnings +$ +133.9 +$ +101.0 +$ +80.8 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(18.5 +) +(5.4 +) +5.7 +Effective portion of changes related to foreign exchange contracts: +Net gain (loss) arising during the period, net of taxes of $4.1, $0.2 and $1.0 +9.1 +(0.4 +) +(2.1 +) +Reclassification adjustments into cost of goods sold, net of taxes of $(0.2), $(0.6) and $1.3 +0.3 +1.3 +(2.9 +) +Unrealized gain (loss) on interest rate swap, net of taxes of $0.1, $(0.8) and $0.5 +(0.2 +) +1.6 +(1.0 +) +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $19.6, $(33.1) and $16.0 +(36.3 +) +61.4 +(29.8 +) +Amortization of prior actuarial losses, net of taxes of $(2.6), $(10.7) and $(7.3) +4.8 +19.7 +13.5 +Amortization of prior service cost +0.1 +0.1 +0.1 +Settlement gain included in net income, net of taxes of $0.3 +(0.7 +) +— +— +Other comprehensive (loss) income +(41.4 +) +78.3 +(16.5 +) +Comprehensive income +92.5 +179.3 +64.3 +Less: comprehensive (loss) income attributable to noncontrolling interest +(0.3 +) +0.5 +— +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +92.8 +$ +178.8 +$ +64.3 +See accompanying notes to consolidated financial statements. +35 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) +January 3, +2015 +December 28, +2013 +ASSETS +Current assets: +Cash and cash equivalents +$ +223.8 +$ +214.2 +Accounts receivable, less allowances: +January 3, 2015 – $41.0 +December 28, 2013 – $37.8 +312.7 +398.1 +Inventories: +Finished products +398.1 +406.0 +Raw materials and work-in-process +15.9 +22.2 +Total inventories +414.0 +428.2 +Deferred income taxes +28.1 +29.1 +Prepaid expenses and other current assets +63.6 +48.4 +Total current assets +1,042.2 +1,118.0 +Property, plant and equipment: +Gross cost +415.3 +416.1 +Accumulated depreciation +(278.5 +) +(264.2 +) +Property, plant and equipment, net +136.8 +151.9 +Other assets: +Goodwill +438.8 +445.3 +Indefinite-lived intangibles +690.5 +690.5 +Amortizable intangibles, net +112.1 +126.7 +Deferred income taxes +2.8 +3.4 +Deferred financing costs, net +16.5 +22.0 +Other +64.8 +64.4 +Total other assets +1,325.5 +1,352.3 +Total assets +$ +2,504.5 +$ +2,622.2 +See accompanying notes to consolidated financial statements. +36 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets – continued +(In millions, except share data) +January 3, +2015 +December 28, +2013 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +149.4 +$ +135.2 +Accrued salaries and wages +36.1 +41.5 +Other accrued liabilities +108.5 +99.3 +Current maturities of long-term debt +46.7 +53.3 +Total current liabilities +340.7 +329.3 +Long-term debt, less current maturities +854.1 +1,096.7 +Accrued pension liabilities +128.1 +74.2 +Deferred income taxes +217.0 +253.9 +Other liabilities +26.6 +26.7 +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity: +Common stock – par value $1, authorized 320,000,000 shares; shares issued (including shares in treasury): +January 3, 2015 – 102,253,150 shares +December 28, 2013 – 100,817,972 shares +102.3 +100.8 +Additional paid-in capital +40.1 +5.0 +Retained earnings +852.2 +743.1 +Accumulated other comprehensive loss +(49.5 +) +(9.2 +) +Cost of shares in treasury: +January 3, 2015 – 416,812 shares +December 28, 2013 – 72,514 shares +(11.6 +) +(2.1 +) +Total Wolverine World Wide, Inc. stockholders’ equity +933.5 +837.6 +Noncontrolling interest +4.5 +3.8 +Total stockholders’ equity +938.0 +841.4 +Total liabilities and stockholders’ equity +$ +2,504.5 +$ +2,622.2 +See accompanying notes to consolidated financial statements. +37 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow +Fiscal Year +(In millions) +2014 +2013 +2012 +OPERATING ACTIVITIES +Net earnings +$ +133.9 +$ +101.0 +$ +80.8 +Adjustments necessary to reconcile net earnings to net cash provided by operating activities: +Depreciation and amortization +53.3 +56.2 +27.7 +Deferred income taxes +(19.1 +) +(27.8 +) +(4.2 +) +Stock-based compensation expense +25.1 +28.2 +15.0 +Excess tax benefits from stock-based compensation +(5.6 +) +(3.4 +) +(9.9 +) +Pension contribution +(3.9 +) +(2.4 +) +(26.7 +) +Pension and SERP expense +11.9 +37.3 +27.9 +Debt extinguishment costs +1.3 +13.1 +— +Restructuring costs +27.0 +8.3 +— +Cash payments related to restructuring costs +(7.7 +) +(1.4 +) +— +Other +11.5 +(4.3 +) +4.8 +Changes in operating assets and liabilities: +Accounts receivable +76.5 +(41.3 +) +15.1 +Inventories +2.9 +35.1 +(29.4 +) +Other operating assets +(17.8 +) +12.8 +(17.1 +) +Accounts payable +16.2 +(26.5 +) +5.9 +Other operating liabilities +9.1 +17.4 +1.7 +Net cash provided by operating activities +314.6 +202.3 +91.6 +INVESTING ACTIVITIES +Business acquisition, net of cash acquired +— +— +(1,225.9 +) +Additions to property, plant and equipment +(30.0 +) +(41.7 +) +(14.9 +) +Proceeds from sales of property, plant and equipment +— +2.8 +— +Investments in joint ventures +(1.1 +) +(2.5 +) +(2.9 +) +Other +(3.7 +) +(3.3 +) +(2.4 +) +Net cash used in investing activities +(34.8 +) +(44.7 +) +(1,246.1 +) +FINANCING ACTIVITIES +Net repayments under revolving credit agreement +— +— +(11.0 +) +Borrowings of long-term debt +— +775.0 +1,275.0 +Payments of long-term debt +(249.8 +) +(875.0 +) +(25.5 +) +Payments of debt issuance costs +— +(2.3 +) +(40.1 +) +Cash dividends paid +(24.0 +) +(23.7 +) +(23.6 +) +Purchase of common stock for treasury +— +— +(2.4 +) +Purchases of shares under employee stock plans +(10.5 +) +(0.8 +) +(11.7 +) +Proceeds from the exercise of stock options +7.3 +8.6 +11.6 +Excess tax benefits from stock-based compensation +5.6 +3.4 +9.9 +Contributions from noncontrolling interest +1.0 +2.0 +1.2 +Net cash (used in) provided by financing activities +(270.4 +) +(112.8 +) +1,183.4 +Effect of foreign exchange rate changes +0.2 +(2.0 +) +2.5 +Increase in cash and cash equivalents +9.6 +42.8 +31.4 +Cash and cash equivalents at beginning of the year +214.2 +171.4 +140.0 +Cash and cash equivalents at end of the year +$ +223.8 +$ +214.2 +$ +171.4 +OTHER CASH FLOW INFORMATION +Interest paid +$ +42.2 +$ +48.8 +$ +10.0 +Net income taxes paid +$ +70.2 +$ +33.5 +$ +16.3 +See accompanying notes to consolidated financial statements. +38 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance as of December 31, 2011 +$ +96.3 +$ +— +$ +553.4 +$ +(71.0 +) +$ +— +$ +— +$ +578.7 +Net earnings +80.7 +0.1 +80.8 +Other comprehensive loss +(16.5 +) +— +(16.5 +) +Shares issued under stock incentive plans, net of forfeitures (2,992,428 shares) +1.5 +1.5 +Stock-based compensation expense +15.0 +15.0 +Amounts associated with shares issued under stock incentive plans: +Proceeds over par value +9.5 +9.5 +Income tax benefits +11.0 +11.0 +Issuance of performance shares (394,608 shares) +(0.2 +) +(0.2 +) +Issuance of treasury shares (20,766 shares) +— +0.5 +0.5 +Shares acquired for treasury (354,411 shares) +(14.1 +) +(14.1 +) +Cash dividends declared ($0.24 per share) +(23.7 +) +(23.7 +) +Capital contribution from noncontrolling interest +1.2 +1.2 +Impact of stock split in the form of a stock dividend +0.9 +(35.3 +) +23.0 +11.4 +— +Balance as of December 29, 2012 +$ +98.7 +$ +— +$ +633.4 +$ +(87.5 +) +$ +(2.2 +) +$ +1.3 +$ +643.7 +Net earnings +100.4 +0.6 +101.0 +Other comprehensive income (loss) +78.3 +(0.1 +) +78.2 +Shares issued under stock incentive plans, net of forfeitures (2,068,751 shares) +1.1 +1.1 +Stock-based compensation expense +28.2 +28.2 +Amounts associated with shares issued under stock incentive plans: +Proceeds over par value +7.5 +7.5 +Income tax benefits +3.9 +3.9 +Issuance of performance shares (785,458 shares) +(0.4 +) +(0.4 +) +Issuance of treasury shares (26,590 shares) +— +0.6 +0.6 +Shares acquired for treasury (17,085 shares) +(0.8 +) +(0.8 +) +Cash dividends declared ($0.24 per share) +(23.6 +) +(23.6 +) +Capital contribution from noncontrolling interest +2.0 +2.0 +Impact of stock split in the form of stock dividend +1.0 +(34.2 +) +32.9 +0.3 +— +Balance as of December 28, 2013 +$ +100.8 +$ +5.0 +$ +743.1 +$ +(9.2 +) +$ +(2.1 +) +$ +3.8 +$ +841.4 +See accompanying notes to consolidated financial statements +39 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance as of December 28, 2013 +$ +100.8 +$ +5.0 +$ +743.1 +$ +(9.2 +) +$ +(2.1 +) +$ +3.8 +$ +841.4 +Net earnings +133.1 +0.8 +133.9 +Other comprehensive loss +(40.3 +) +(1.1 +) +(41.4 +) +Shares issued under stock incentive plans, net of forfeitures (795,523 shares) +0.8 +(0.8 +) +— +Shares issued for stock options exercised, net (639,655 shares) +0.7 +6.6 +7.3 +Stock-based compensation expense +25.1 +25.1 +Income tax benefits from stock incentive plans +4.2 +4.2 +Cash dividends declared ($0.24 per share) +(24.0 +) +(24.0 +) +Issuance of treasury shares (35,484 shares) +— +1.0 +1.0 +Purchases of shares under employee stock plans (379,782 shares) +(10.5 +) +(10.5 +) +Capital contribution from noncontrolling interest +1.0 +1.0 +Balance as of January 3, 2015 +$ +102.3 +$ +40.1 +$ +852.2 +$ +(49.5 +) +$ +(11.6 +) +$ +4.5 +$ +938.0 +See accompanying notes to consolidated financial statements. +40 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years Ended January 3, 2015 , December 28, 2013 and December 29, 2012 +1. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; children’s footwear, industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Cushe ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Patagonia ® , Saucony ® , Sebago ® , Soft Style ® , Sperry Top-Sider ® , Stride Rite ® and Wolverine ® . Licensing and distribution arrangements with third parties extend the global reach of the Company’s brand portfolio. The Company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers, as well as a leathers division that markets Wolverine Performance Leathers™ . +Principles of Consolidation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal 2014 had 53 weeks and fiscal years 2013 and 2012 contained 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, a reduction or increase to net revenues would be recorded in the period this determination was made. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Shipping and Handling Costs +Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates market. +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +41 +Table of Contents +Inventories +The Company values its inventory at the lower of cost or market. Cost is determined by the LIFO method for all domestic raw materials and work-in-process inventories and certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for computer hardware and software, store furniture and fixtures, office furniture and machinery and equipment. Normal repairs and maintenance are expensed as incurred. +Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings and improvements, from 5 to 10 years for leasehold improvements and from 3 to 10 years for machinery, equipment and software. +Operating Leases +The Company leases its retail stores and certain distribution and office facilities under operating leases. In addition to the minimum lease payments, leases may include rent escalation clauses, contingent rental expense and lease incentives, including rent holidays and tenant improvement allowances. Rent expense is recognized on a straight-line basis over the term of the lease from the time at which the Company takes possession of the property. Landlord-provided tenant improvement allowances are recorded in other liabilities and amortized as a credit to rent expense over the term of the lease. Leasehold improvements are depreciated at the lesser of the estimated useful life or lease term, including reasonably-assured lease renewals as determined at lease inception. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. These costs are amortized into earnings through interest expense over the terms of the respective agreements. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. +Acquisitions +The Company accounts for acquired businesses using the purchase method of accounting. Under the purchase method, the Company’s consolidated financial statements include the operations of an acquired business from the date of acquisition. In addition, the assets acquired and liabilities assumed are recorded at the date of acquisition at their respective estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired recorded as goodwill. +The Company typically uses an income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, the economic barriers to entry and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions. +Determining the useful life of an intangible asset also requires judgment. Certain intangibles are expected to have indefinite lives based on their history and the Company’s plans to continue to support and build the acquired brands. Other acquired intangible assets (e.g., certain trademarks or brands, customer relationships, patents and technologies) are expected to have determinable useful lives. The Company’s assessment as to trademarks and brands that have an indefinite life and those that have a determinable life is based on a number of factors including competitive environment, market share, trademark and/or brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the trademarks or brands are sold. The Company’s estimates of the useful lives of determinable-lived intangibles are based primarily on these same factors. All of the Company’s acquired technology and customer-related intangibles are expected to have determinable useful lives. The costs of determinable-lived intangibles are amortized to expense over their estimated lives. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted +42 +Table of Contents +cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units. Goodwill is considered impaired if the recorded value of the tangible and intangible net assets exceeds the fair value of the reporting unit. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. The Company did not recognize any impairment charges for goodwill or indefinite-lived intangible assets during fiscal years 2014, 2013 or 2012 as the Company’s annual impairment testing indicated that all reporting unit goodwill and indefinite-lived intangible asset fair values exceeded their respective carrying values. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 12 to the consolidated financial statements for additional information. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2014, 2013 and 2012. +2. +NEW ACCOUNTING STANDARDS +In July 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. ASU 2013-11 is effective prospectively for reporting periods +43 +Table of Contents +beginning after December 15, 2013. The Company adopted ASU 2013-11 in the first quarter of fiscal 2014, and the adoption did not affect the Company’s consolidated financial position, results of operations or cash flows. +In April 2014, FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”) that amends the requirements for reporting discontinued operations. ASU 2014-08 requires the disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations if the disposal represents a strategic shift that will have a major effect on the entity’s operations and financial results. ASU 2014-08 also requires additional disclosures about discontinued operations and disclosures about the disposal of a significant component of an entity that does not qualify as a discontinued operation. ASU 2014-08 is effective prospectively for reporting periods beginning after December 15, 2014, with early adoption permitted. The Company adopted ASU 2014-08 in the third quarter of fiscal 2014, and the adoption did not affect the Company’s consolidated financial position, results of operations or cash flows. +In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is evaluating the potential impacts of the new standard on its existing revenue recognition policies and procedures. +In June 2014, FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is evaluating the potential impacts of the new standard on its existing stock-based compensation plans. +In August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires that an entity’s management evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and for interim periods thereafter. The Company does not expect the new standard to have a significant impact on its quarterly reporting process. +3. +EARNINGS PER SHARE +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +On July 11, 2013, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock dividend that was paid on November 1, 2013 to stockholders of record on October 1, 2013. On April 24, 2014, the Company amended its Restated Certificate of Incorporation to increase the number of shares of the Company’s authorized common stock from 160,000,000 shares to 320,000,000 shares. All share and per share data in this Annual Report on Form 10-K has been presented to reflect the split and increase in authorized shares. +44 +Table of Contents +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except share and per share data) +2014 +2013 +2012 +Numerator: +Net earnings attributable to Wolverine World Wide, Inc. +$ +133.1 +$ +100.4 +$ +80.7 +Adjustment for earnings allocated to nonvested restricted common stock +(2.9 +) +(2.3 +) +(1.7 +) +Net earnings used to calculate basic earnings per share +130.2 +98.1 +79.0 +Adjustment for earnings reallocated to nonvested restricted common stock +0.1 +0.1 +0.1 +Net earnings used to calculate diluted earnings per share +$ +130.3 +$ +98.2 +$ +79.1 +Denominator: +Weighted average shares outstanding +101,433,114 +100,253,617 +97,632,336 +Adjustment for nonvested restricted common stock +(3,228,955 +) +(3,308,162 +) +(2,757,836 +) +Shares used to calculate basic earnings per share +98,204,159 +96,945,455 +94,874,500 +Effect of dilutive stock options +1,860,661 +1,993,343 +2,154,152 +Shares used to calculate diluted earnings per share +100,064,820 +98,938,798 +97,028,652 +Net earnings per share: +Basic +$ +1.33 +$ +1.01 +$ +0.84 +Diluted +$ +1.30 +$ +0.99 +$ +0.81 +Options granted to purchase 1,116,576 shares of common stock in fiscal 2014, 449,036 shares in fiscal 2013 and 775,182 shares in fiscal 2012 have not been included in the denominator for the computation of diluted earnings per share for each of those fiscal years because the related exercise prices were greater than the average market price for the year, and they were, therefore, anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of January 3, 2015 or December 28, 2013 . The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +On February 12, 2014, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of up to $ 200.0 million in common stock over a four-year period. The Company did not repurchase any shares of Company common stock in fiscal 2014 or fiscal 2013 under a stock repurchase program and repurchased $ 2.4 million of Company stock during fiscal 2012. In addition to the stock repurchase program activity, the Company acquired $ 10.5 million , $ 0.8 million and $ 11.7 million of shares in fiscal years 2014, 2013 and 2012, respectively, in connection with employee transactions related to stock incentive plans. +4. +GOODWILL AND OTHER INTANGIBLE ASSETS +The changes during fiscal years 2014 and 2013 in the carrying amount of goodwill and indefinite-lived intangibles, which comprises trademarks and trade names, is as follows: +(In millions) +Goodwill +Indefinite-lived intangibles +Total +Balance at December 29, 2012 +$ +459.9 +$ +679.8 +$ +1,139.7 +Acquisition adjustments +(10.8 +) +10.0 +(0.8 +) +Foreign currency translation effects +(3.8 +) +0.7 +(3.1 +) +Balance at December 28, 2013 +$ +445.3 +$ +690.5 +$ +1,135.8 +Foreign currency translation effects +(6.5 +) +— +(6.5 +) +Balance at January 3, 2015 +$ +438.8 +$ +690.5 +$ +1,129.3 +45 +Table of Contents +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. They consist primarily of customer relationships, licensing arrangements and developed product technology. The combined gross carrying value and accumulated amortization for these amortizable intangibles is as follows: +January 3, 2015 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +17 +$ +100.5 +$ +11.5 +$ +89.0 +Licensing arrangements +2 +28.8 +15.2 +13.6 +Developed product technology +3 +14.9 +6.8 +8.1 +Other +2 +10.4 +9.0 +1.4 +Total +$ +154.6 +$ +42.5 +$ +112.1 +December 28, 2013 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +18 +$ +100.5 +$ +6.4 +$ +94.1 +Licensing arrangements +3 +28.8 +8.3 +20.5 +Developed product technology +4 +14.9 +3.8 +11.1 +Backlog +0 +5.2 +5.2 +— +Other +2 +9.3 +8.3 +1.0 +Total +$ +158.7 +$ +32.0 +$ +126.7 +Amortization expense for other intangible assets was $ 15.7 million , $ 18.4 million and $ 6.5 million for fiscal years 2014 , 2013 and 2012, respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to January 3, 2015 is as follows: +(In millions) +2015 +2016 +2017 +2018 +2019 +Amortization expense +$ +15.5 +$ +13.8 +$ +8.7 +$ +5.1 +$ +5.0 +5. +ACCOUNTS RECEIVABLE +During the fourth quarter of fiscal 2014, the Company executed a three-year agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis. Under the agreement, up to $ 200.0 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheets, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability at January 3, 2015 . For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. As of January 3, 2015 , this program had reduced the Company's accounts receivable by $ 60.9 million . During fiscal 2014, the Company sold a total of $ 72.8 million of accounts receivable at their stated amounts of which $ 65.5 million was paid for in cash, less a $ 0.1 million discount fee charged by the financial institution. The discount fee is recorded in other expense. Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows. +6. +INVENTORIES +The Company used the LIFO method to value inventories of $ 62.5 million at January 3, 2015 and $ 59.3 million at December 28, 2013 . If the FIFO method had been used, inventories would have been $ 25.1 million and $ 21.8 million higher than reported at January 3, 2015 and December 28, 2013 , respectively. +46 +Table of Contents +7. +DEBT +Total debt consists of the following obligations: +(In millions) +January 3, +2015 +December 28, +2013 +Term Loan A, due October 10, 2018 +$ +525.2 +$ +775.0 +Public Bonds, 6.125% interest, due October 15, 2020 +375.0 +375.0 +Capital lease obligation +0.6 +— +Total debt +$ +900.8 +$ +1,150.0 +The Company’s Credit Agreement originally provided the Company with two term loans (a Term Loan A Facility and a Term Loan B Facility) and the Revolving Credit Facility. On October 10, 2013, the Company amended its Credit Agreement resulting in the payoff of the Term Loan B Facility while establishing a principal balance of $775.0 million for the Term Loan A Facility. The Amendment provided for a lower effective interest rate on the term loan debt, and a one-year extension on both the Term Loan A Facility and the Revolving Credit Facility, both of which are now due October 10, 2018. In addition, the Amendment provided for increased maximum debt capacity (including outstanding term loan principal and Revolving Credit Facility commitment amounts in addition to permitted incremental debt) not to exceed $1,350.0 million . The Company incurred $ 13.1 million of debt extinguishment costs in fiscal 2013 in connection with the Amendment. The Company incurred $ 1.3 million of debt extinguishment costs in fiscal 2014 due to $ 200.0 million of voluntary debt payments. These costs represent a write-off of previously capitalized deferred financing costs. +The interest rates applicable to amounts outstanding under the Term Loan A Facility and to U.S. dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.375% to 1.25% , or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.375% to 2.25% (all capitalized terms used in this sentence are as defined in the Credit Agreement). As required by the Credit Agreement, the Company has an interest rate swap arrangement that reduces the Company’s exposure to fluctuations in interest rates on its variable rate debt. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $200.0 million and includes a $100.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. +The Company had outstanding letters of credit under the Revolving Credit Facility as of January 3, 2015 and December 28, 2013 of $ 3.6 million and $ 3.5 million , respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Credit Agreement also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Credit Agreement requires compliance with the following financial covenants: a maximum Consolidated Leverage Ratio; a maximum Consolidated Secured Leverage Ratio; and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Credit Agreement). As of January 3, 2015 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $375.0 million of senior notes outstanding that may be traded in the public market that are due on October 15, 2020. The Public Bonds bear interest at 6.125% with the related interest payments due semi-annually. The Public Bonds are guaranteed by substantially all of the Company’s domestic subsidiaries. +During fiscal 2014, the Company entered into a $ 5.0 million (or the equivalent amount in Chinese Renminbi) revolving line of credit. The facility is uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender. As of January 3, 2015, there were no borrowings against this facility. +47 +Table of Contents +During the second quarter of fiscal 2014, the Company recorded a capital lease obligation. The lease commenced during June 2014 and payments are scheduled to continue through February 2022. +The Company included in interest expense the amortization of deferred financing costs of approximately $ 4.2 million , $ 6.1 million and $1.8 million in fiscal years 2014, 2013 and 2012, respectively. +Subsequent to the end of fiscal 2014, the Company made voluntary debt payments of $ 58.0 million on the Term Loan A Facility. +Cash flows from operating activities, along with borrowings on the Revolving Credit Facility, if any, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flows from operating activities are expected to be used to reduce debt, fund internal and external growth initiatives, purchase property, plant and equipment, pay dividends or repurchase the Company’s common stock. +Annual maturities of debt for the fiscal years subsequent to January 3, 2015 are as follows: +(In millions) +2015 +2016 +2017 +2018 +2019 +Thereafter +Annual maturities of debt +$ +46.7 +$ +57.6 +$ +57.6 +$ +363.6 +$ +0.1 +$ +375.2 +8. +ACCUMLATED OTHER COMPREHENSIVE INCOME (LOSS) +Comprehensive income (loss) represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +The change in accumulated other comprehensive income (loss) during fiscal years 2014 and 2013 is as follows: +(In millions) +Foreign +currency +translation +adjustments +Foreign +exchange +contracts +Interest +rate +swap +Pension +adjustments +Total +Balance of accumulated other comprehensive income (loss) as of December 29, 2012 +$ +5.9 +$ +(1.7 +) +$ +(1.0 +) +$ +(90.7 +) +$ +(87.5 +) +Other comprehensive income (loss) before reclassifications (1) +(5.4 +) +(0.4 +) +1.6 +61.4 +57.2 +Amounts reclassified from accumulated other comprehensive income (loss) +— +1.9 +(2) +— +30.5 +(3) +32.4 +Income tax expense (benefit) +— +(0.6 +) +— +(10.7 +) +(11.3 +) +Net reclassifications +— +1.3 +— +19.8 +21.1 +Net current-period other comprehensive income (loss) (1) +(5.4 +) +0.9 +1.6 +81.2 +78.3 +Balance of accumulated other comprehensive income (loss) as of December 28, 2013 +$ +0.5 +$ +(0.8 +) +$ +0.6 +$ +(9.5 +) +$ +(9.2 +) +Balance of accumulated other comprehensive income (loss) as of December 28, 2013 +$ +0.5 +$ +(0.8 +) +$ +0.6 +$ +(9.5 +) +$ +(9.2 +) +Other comprehensive income (loss) before reclassifications (1) +(17.4 +) +9.1 +(0.2 +) +(36.3 +) +(44.8 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +0.5 +(2) +— +6.5 +(3) +7.0 +Income tax expense (benefit) +— +(0.2 +) +— +(2.3 +) +(2.5 +) +Net reclassifications +— +0.3 +— +4.2 +4.5 +Net current-period other comprehensive income (loss) (1) +(17.4 +) +9.4 +(0.2 +) +(32.1 +) +(40.3 +) +Balance of accumulated other comprehensive income (loss) as of January 3, 2015 +$ +(16.9 +) +$ +8.6 +$ +0.4 +$ +(41.6 +) +$ +(49.5 +) +(1) +Other comprehensive income is reported net of taxes and noncontrolling interest. +(2) +Amounts reclassified are included in cost of goods sold. +(3) +Amounts reclassified are included in the computation of net pension expense (see Note 12 for additional details). +48 +Table of Contents +9. +PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) +January 3, +2015 +December 28, +2013 +Land +$ +4.1 +$ +3.9 +Buildings and improvements +114.3 +119.0 +Machinery and equipment +194.9 +192.1 +Software +102.0 +101.1 +Gross cost +415.3 +416.1 +Less: accumulated depreciation +278.5 +264.2 +Property, plant and equipment, net +$ +136.8 +$ +151.9 +Depreciation expense was $ 37.6 million , $ 37.8 million and $ 21.2 million for fiscal years 2014, 2013 and 2012, respectively. +The Company leases machinery, equipment and certain warehouse, office and retail store space under operating lease agreements that expire at various dates through 2031. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes and other operating expenses. +Minimum rental payments due under all non-cancelable operating leases for the fiscal years subsequent to January 3, 2015 are as follows: +(In millions) +2015 +2016 +2017 +2018 +2019 +Thereafter +Minimum rental payments +$ +50.9 +$ +45.3 +$ +38.8 +$ +33.4 +$ +28.9 +$ +125.8 +Rental expense under all operating leases, consisting primarily of minimum rentals, totaled $ 59.2 million in fiscal 2014 , $ 55.9 million in fiscal 2013 and $ 29.4 million in fiscal 2012 . +10. +FINANCIAL INSTRUMENTS AND RISK MANAGEMENT +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: +Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: +Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: +Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +The Company’s financial instruments consist of cash and cash equivalents, accounts and notes receivable, accounts payable, foreign currency forward exchange contracts, an interest rate swap arrangement, borrowings under the Revolving Credit Facility and long-term debt. The carrying amount of the Company’s financial instruments is historical cost, which approximates fair value, except for the interest rate swap and foreign currency forward exchange contracts, which are carried at fair value. The carrying value and the fair value of the Company’s long-term debt, excluding capital leases, are as follows: +(In millions) +January 3, 2015 +December 28, 2013 +Carrying value +$ +900.2 +$ +1,150.0 +Fair value +928.4 +1,183.8 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +The Company follows ASC 815, which is intended to improve transparency in financial reporting and requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. +49 +Table of Contents +The Company has one interest rate swap arrangement which exchanges floating rate for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts. This derivative instrument, which, unless otherwise terminated, will mature on October 6, 2017 , has been designated as a cash flow hedge of the debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The Company does not hold or issue financial instruments for trading purposes. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) +January 3, 2015 +December 28, 2013 +Foreign exchange contracts: +Notional amount +$ +141.6 +$ +129.1 +Maturities (in days) +336 +364 +Interest rate swap: +Notional amount +$ +405.4 +$ +455.5 +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) +January 3, 2015 +December 28, 2013 +Financial assets: +Foreign exchange contracts asset +$ +8.6 +$ +1.7 +Interest rate swap asset +0.6 +0.9 +Financial liabilities: +Foreign exchange contracts liability +— +2.3 +The fair value of the foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. Hedge effectiveness is evaluated by the hypothetical derivative method. Any hedge ineffectiveness is reported within the Cost of goods sold line item in the consolidated statements of operations and comprehensive income. Hedge ineffectiveness was not material to the Company’s consolidated financial statements for fiscal years 2014, 2013 and 2012. If, in the future, the foreign exchange contracts are determined to be ineffective hedges or terminated before their contractual termination dates, the Company would be required to reclassify into earnings all or a portion of the unrealized amounts related to the cash flow hedges that are currently included in accumulated other comprehensive loss within stockholders’ equity. +The differential paid or received on the interest rate swap arrangement is recognized as interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swap and the variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the hedge’s inception, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of accumulated other comprehensive loss and will be recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value will be immediately recognized in earnings. +11. +STOCK-BASED COMPENSATION +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC 718. The Company recognized compensation expense of $ 25.1 million , $ 28.2 million and $ 15.0 million and related income tax benefits of $ 8.4 million , $ 9.3 million and $ 4.9 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2014 , 2013 and 2012 , respectively. +Stock-based compensation expense recognized in the consolidated statements of operations for fiscal years 2014 , 2013 and 2012 was based on awards ultimately expected to vest and, as such, was reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. +50 +Table of Contents +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes model. The estimated weighted-average fair value for each option granted was $6.20 , $5.24 and $5.36 per share for fiscal years 2014 , 2013 and 2012 , respectively, with the following weighted-average assumptions. +Fiscal Year +2014 +2013 +2012 +Expected market price volatility (1) +29.6 +% +33.2 +% +37.8 +% +Risk-free interest rate (2) +1.2 +% +0.6 +% +0.6 +% +Dividend yield (3) +0.9 +% +1.2 +% +1.3 +% +Expected term (4) +4 years +4 years +4 years +(1) +Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant. +(2) +Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. +(3) +Represents the Company’s estimated cash dividend yield for the expected term. +(4) +Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior. +As of January 3, 2015 , the Company had stock options outstanding under various stock incentive plans. As of January 3, 2015 , the Company had approximately 7,664,828 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance. Each option or stock appreciation right granted counts as one stock incentive unit and all other awards granted, including restricted stock, count as 2.6 stock incentive units. Options granted under each plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . Restricted stock issued under these plans is subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment or upon failure to achieve performance criteria in certain instances. These restrictions typically lapse over a three- to five-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted share awards provide for accelerated vesting under various scenarios, including retirement and upon a change in control of the Company. With regard to acceleration of vesting upon retirement, employees of eligible retirement age are vested in accordance with plan provisions and applicable stock option and restricted stock agreements. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued, shares or treasury shares. +51 +Table of Contents +A summary of the transactions under the stock option plans is as follows: +Shares Under Option +Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at December 31, 2011 +7,389,968 +$ +11.70 +5.5 +$ +45.7 +Granted +902,554 +19.85 +Exercised +(2,729,502 +) +9.95 +Cancelled +(62,038 +) +17.78 +Outstanding at December 29, 2012 +5,500,982 +$ +13.84 +5.9 +$ +34.4 +Granted +1,489,813 +21.76 +Exercised +(851,874 +) +11.46 +Cancelled +(107,680 +) +20.89 +Outstanding at December 28, 2013 +6,031,241 +$ +16.00 +6.2 +$ +104.9 +Granted +1,349,849 +27.09 +Exercised +(737,402 +) +13.15 +Cancelled +(245,695 +) +24.16 +Outstanding at January 3, 2015 +6,397,993 +$ +18.36 +6.2 +$ +68.3 +Estimated forfeitures +(9,836 +) +Vested or expected to vest at January 3, 2015 +6,388,157 +$ +18.35 +6.2 +$ +68.3 +Nonvested at January 3, 2015 and expected to vest +(2,037,458 +) +Exercisable at January 3, 2015 +4,350,699 +$ +15.47 +5.1 +$ +59.0 +The total pretax intrinsic value of options exercised during fiscal years 2014 , 2013 and 2012 was $10.3 million , $12.8 million and $30.1 million , respectively. As of January 3, 2015 , there was $ 4.6 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 1.2 years. As of December 28, 2013 and December 29, 2012 , there was $4.3 million and $2.9 million , respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.3 years and 1.2 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $ 29.03 as of January 3, 2015 , which would have been received by the option holders had all option holders exercised options, where the market price of the Company's stock was above the strike price ("in-the-money"), as of that date. The total number of in-the-money options exercisable as of January 3, 2015 was 4,341,758 and the weighted-average exercise price was $15.44 . As of December 28, 2013 , 4,004,398 outstanding options were exercisable and in-the-money and the weighted-average exercise price was $13.54 . +Beginning in 2009, the Board of Directors has awarded an annual grant of performance share awards to the officers of the Company. The number of performance-based shares that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the performance shares that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of shares to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +52 +Table of Contents +A summary of the nonvested restricted shares and units issued under the stock award plans is as follows: +Restricted +Awards +Weighted- +Average +Grant Date +Fair Value +Performance +Awards +Weighted- +Average +Grant Date +Fair Value +Nonvested at December 31, 2011 +1,491,858 +$ +12.89 +1,282,660 +$ +12.69 +Granted +703,348 +20.14 +401,190 +19.89 +Vested +(730,434 +) +12.51 +(872,352 +) +10.63 +Forfeited +(66,310 +) +16.13 +(32,104 +) +12.82 +Nonvested at December 29, 2012 +1,398,462 +$ +16.58 +779,394 +$ +18.93 +Granted +744,287 +22.18 +789,814 +21.52 +Vested +(102,724 +) +15.35 +(28,580 +) +13.62 +Forfeited +(109,600 +) +19.96 +(109,628 +) +20.99 +Nonvested at December 28, 2013 +1,930,425 +$ +18.61 +1,431,000 +$ +20.31 +Granted +689,345 +27.09 +609,335 +27.03 +Vested +(700,543 +) +16.49 +(244,625 +) +18.85 +Forfeited +(192,045 +) +22.39 +(304,940 +) +20.27 +Nonvested at January 3, 2015 +1,727,182 +$ +22.44 +1,490,770 +$ +23.30 +As of January 3, 2015 , there was $ 16.2 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans. That cost is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of shares vested during the year ended January 3, 2015 was $ 19.5 million . As of December 28, 2013 , there was $13.8 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans. That cost was expected to be recognized over a weighted-average period of 1.9 years. The total fair value of shares vested during the year ended December 28, 2013 was $2.7 million . As of December 29, 2012 , there was $11.6 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans that was expected to be recognized over a weighted-average period of 2.1 years. The total fair value of shares vested during the year ended December 29, 2012 was $14.9 million . +As of January 3, 2015 , there was $ 6.0 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under performance-based award plans. That cost is expected to be recognized over a weighted-average period of 1.3 years. The total fair value of shares vested during the year ended January 3, 2015 was $ 6.6 million . As of December 28, 2013 , there was $8.0 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under performance-based restricted stock award plans. That cost was expected to be recognized over a weighted-average period of 1.2 years. The total fair value of shares vested during the year ended December 28, 2013 was $0.6 million . As of December 29, 2012 , there was $3.5 million of unrecognized compensation expense related to nonvested share-based compensation arrangements granted under performance-based restricted stock award plans that was expected to be recognized over a weighted-average period of 1.2 years. The total fair value of shares vested during the year ended December 29, 2012 was $ 17.5 million . +53 +Table of Contents +12. +RETIREMENT PLANS +The Company has three non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan provides benefits based on the employee’s years of service and final average earnings. Effective January 1, 2013, the Company closed this plan to new participants. The Company’s second plan provides benefits at a fixed rate per year of service for certain employees under a collective bargaining arrangement. The Company’s third non-contributory defined benefit pension plan, which no longer accrues future benefits, covers certain eligible PLG associates. Prior to the freezing of that plan, eligible PLG participants accrued pension benefits at a fixed unit rate based on the participant’s service and/or compensation. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company for a period of time that generally extends 15 to 18 years following retirement. The Company maintains life insurance policies with a cash surrender value of $ 59.5 million at January 3, 2015 and $ 55.3 million at December 28, 2013 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for Company contributions based on earnings. The Company recognized expense for its defined contribution plans of $ 4.7 million , $ 4.8 million and $ 2.9 million in fiscal years 2014 , 2013 and 2012 , respectively. +The Company has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.2 million , $ 1.5 million and $ 0.9 million in fiscal years 2014 , 2013 and 2012 , respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 2.2 million at January 3, 2015 and $ 2.6 million at December 28, 2013 and was recognized as a deferred compensation liability on the consolidated balance sheets. +54 +Table of Contents +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2014 and 2013 : +Fiscal Year +(In millions) +2014 +2013 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ +395.4 +$ +445.2 +Service cost pertaining to benefits earned during the year +7.2 +9.0 +Interest cost on projected benefit obligations +20.3 +18.8 +Actuarial (gains) losses +66.2 +(62.3 +) +Benefits paid to plan participants +(32.2 +) +(15.3 +) +Settlements +(24.0 +) +— +Projected benefit obligations at end of the year +$ +432.9 +$ +395.4 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ +319.6 +$ +277.3 +Actual return on plan assets +32.5 +53.1 +Company contributions - pension +3.9 +2.4 +Company contributions - SERP +2.3 +2.1 +Benefits paid to plan participants +(32.2 +) +(15.3 +) +Settlements +(24.0 +) +— +Fair value of pension assets at end of the year +$ +302.1 +$ +319.6 +Funded status +$ +(130.8 +) +$ +(75.8 +) +Amounts recognized in the consolidated balance sheets: +Non-current assets +$ +1.1 +$ +2.3 +Current liabilities +(3.8 +) +(3.9 +) +Non-current liabilities +(128.1 +) +(74.2 +) +Net amount recognized +$ +(130.8 +) +$ +(75.8 +) +Amounts recognized in accumulated other comprehensive loss: +Unrecognized net actuarial loss (amounts net of tax: $(41.5) and $(9.3)) +$ +(62.6 +) +$ +(13.1 +) +Unrecognized prior service cost (amounts net of tax: $(0.1) and $(0.2)) +(0.1 +) +(0.2 +) +Net amount recognized +$ +(62.7 +) +$ +(13.3 +) +Funded status of pension plans and SERP (supplemental): +Funded status of qualified defined benefit plans and SERP +$ +(130.8 +) +$ +(75.8 +) +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations +53.4 +49.4 +Net funded status of pension plans and SERP (supplemental) +$ +(77.4 +) +$ +(26.4 +) +The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 412.3 million at January 3, 2015 and $ 380.1 million at December 28, 2013 . +55 +Table of Contents +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) +2014 +2013 +2012 +Service cost pertaining to benefits earned during the year +$ +7.2 +$ +9.0 +$ +7.7 +Interest cost on projected benefit obligations +20.3 +18.8 +15.3 +Expected return on pension assets +(22.1 +) +(21.0 +) +(15.9 +) +Net amortization loss +7.5 +30.5 +20.8 +Settlement gain +(1.0 +) +— +— +Net pension expense +$ +11.9 +$ +37.3 +$ +27.9 +Less: SERP expense +7.6 +8.1 +7.7 +Qualified defined benefit pension plans expense +$ +4.3 +$ +29.2 +$ +20.2 +The actuarial loss and prior service cost included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during 2015 is $ 20.9 million and $ 0.1 million , respectively. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2014 +2013 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +4.37% +5.26% +Rate of compensation increase - pension +4.85% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +5.26% +4.30% +Expected long-term rate of return on plan assets +7.50% +7.68% +Rate of compensation increase - pension +4.85% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five -year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and service cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of January 3, 2015 were 65 % in equity securities and 35 % in fixed income securities. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +January 3, 2015 +(In millions) +Level 1 +Level 2 +Level 3 +Total +Equity securities +$ +— +$ +195.6 +$ +— +$ +195.6 +64.7 +% +Fixed income investments +— +105.9 +0.3 +106.2 +35.2 +% +Other +— +— +0.3 +0.3 +0.1 +% +Fair value of plan assets +$ +— +$ +301.5 +$ +0.6 +$ +302.1 +100.0 +% +56 +Table of Contents +December 28, 2013 +(In millions) +Level 1 +Level 2 +Level 3 +Total +Equity securities +$ +15.4 +$ +196.1 +$ +— +$ +211.5 +66.0 +% +Fixed income investments +26.7 +81.2 +— +107.9 +33.6 +% +Cash and money market investments +1.4 +— +— +1.4 +0.4 +% +Fair value of plan assets +$ +43.5 +$ +277.3 +$ +— +$ +320.8 +100.0 +% +Expenses payable to plan sponsor +(1.2 +) +Fair value of plan assets +$ +319.6 +The Company expects to contribute approximately $ 3.7 million to the SERP in fiscal 2015 . The Company does not plan to make any contributions to its qualified defined benefit pension plans in fiscal 2015. +Expected benefit payments for the fiscal years subsequent to January 3, 2015 are as follows: +(In millions) +2015 +2016 +2017 +2018 +2019 +2020-2024 +Expected benefit payments +$ +19.3 +$ +20.0 +$ +20.5 +$ +21.0 +$ +21.5 +$ +118.4 +13. +INCOME TAXES +The geographic components of earnings before income taxes are as follows: +Fiscal Year +(In millions) +2014 +2013 +2012 +United States +$ +132.4 +$ +76.7 +$ +38.3 +Foreign +49.1 +51.0 +55.9 +Earnings before income taxes +$ +181.5 +$ +127.7 +$ +94.2 +The provisions for income taxes consist of the following: +Fiscal Year +(In millions) +2014 +2013 +2012 +Current expense: +Federal +$ +42.1 +$ +37.1 +$ +15.3 +State +5.6 +2.2 +1.4 +Foreign +18.0 +15.0 +3.1 +Deferred expense (credit): +Federal +(9.3 +) +(23.5 +) +(5.1 +) +State +(6.6 +) +(3.0 +) +(0.4 +) +Foreign +(2.2 +) +(1.1 +) +(0.9 +) +Income tax provision +$ +47.6 +$ +26.7 +$ +13.4 +57 +Table of Contents +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate of 35 % to earnings before income taxes is as follows: +Fiscal Year +(In millions) +2014 +2013 +2012 +Income taxes at U.S. statutory rate (35%) +$ +63.5 +$ +44.7 +$ +33.0 +State income taxes, net of federal income tax +3.7 +0.5 +0.2 +(Nontaxable earnings) non-deductible losses of foreign affiliates: +Cayman Islands +(5.5 +) +(5.4 +) +(4.6 +) +Bermuda +(0.4 +) +2.7 +1.7 +Dominican Republic +1.1 +1.7 +(2.0 +) +Tax credits +(0.7 +) +(2.2 +) +— +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong +(16.4 +) +(17.1 +) +(12.2 +) +Other +3.6 +3.1 +(1.6 +) +Adjustments for uncertain tax positions +— +(1.2 +) +(6.7 +) +Change in valuation allowance +(19.2 +) +0.1 +0.7 +Change in state tax rates +(6.0 +) +(2.0 +) +— +Gain on intercompany sale of subsidiary stock +23.2 +— +— +Non-deductible expenses +1.1 +0.9 +4.9 +Other +(0.4 +) +0.9 +— +Income tax provision +$ +47.6 +$ +26.7 +$ +13.4 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) +January 3, +2015 +December 28, +2013 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances +$ +16.6 +$ +18.7 +Deferred compensation accruals +10.9 +11.0 +Accrued pension expense +47.2 +26.6 +Stock-based compensation +20.2 +16.2 +Net operating loss, capital loss and foreign tax credit carryforward +13.9 +32.1 +Other amounts not deductible until paid +14.2 +9.2 +Other +1.0 +0.7 +Total gross deferred income tax assets +124.0 +114.5 +Less valuation allowance +(10.5 +) +(29.7 +) +Net deferred income tax assets +113.5 +84.8 +Deferred income tax liabilities: +Tax depreciation in excess of book depreciation +(3.8 +) +(5.3 +) +Intangible assets +(288.5 +) +(294.8 +) +Other +(10.3 +) +(6.1 +) +Total deferred income tax liabilities +(302.6 +) +(306.2 +) +Net deferred income tax liabilities +$ +(189.1 +) +$ +(221.4 +) +The valuation allowance for deferred income tax assets as of January 3, 2015 and December 28, 2013 was $ 10.5 million and $ 29.7 million , respectively. The net change in the total valuation allowance for fiscal years 2014 and 2013 was $ 19.2 million and $ 26.5 million , respectively. The valuation allowance for both years was primarily related to foreign net operating loss carryforwards, tax credit carryforwards in foreign jurisdictions and a capital loss carryforward in the U.S. that, in the judgment of management, are not more likely than not to be realized. The ultimate realization of the carryforwards depends on the generation of future taxable income in foreign jurisdictions and capital gains in the U.S. tax jurisdiction. During 2014, the Company completed an intercompany stock sale of a foreign subsidiary that generated a U.S. capital gain of $ 66.2 million . The capital gain was offset by a capital loss carryforward that carried a full valuation allowance from prior years. The current year change in the valuation allowance was +58 +Table of Contents +comprised of an increase relating to the additional foreign net operating losses and foreign tax credits of $ 4.0 million and a decrease relating to the capital loss utilization of $ 23.2 million . +At January 3, 2015 , the Company had foreign net operating loss carryforwards of $ 39.3 million , that have expiration periods ranging from three years to an unlimited term during which they are available to offset future foreign taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.0 million , that are available for an unlimitedcarryforward period to offset future foreign taxes. The Company also had a U.S. capital loss carryforward of $ 6.9 million that expires in 2016 that is available to offset future U.S. capital gain income. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) +2014 +2013 +Beginning balance +$ +8.6 +$ +9.8 +Increases related to current year tax positions +1.7 +2.0 +Decreases related to prior year positions +(1.3 +) +(0.4 +) +Decrease due to lapse of statute +(0.4 +) +(2.8 +) +Ending balance +$ +8.6 +$ +8.6 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 7.5 million as of January 3, 2015 and $7.3 million as of December 28, 2013 . The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 2.4 million as of January 3, 2015 and $ 2.2 million as of December 28, 2013 . +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be significant to the consolidated financial statements. +For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2010 . +The Company has not established a deferred tax liability on the amount of foreign unremitted earnings of $ 380.3 million at January 3, 2015 . As of January 3, 2015 , the Company had $ 223.8 million of cash and equivalents on hand, of which $ 208.1 million was held outside of the U.S. The Company intends to permanently reinvest these funds outside of the U.S., and current plans do not demonstrate a need to repatriate this cash to fund our U.S. operations. However, if these funds were repatriated, the Company would be required to accrue and pay applicable U.S. taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these unremitted earnings due to the complexity of the hypothetical calculation. +14. +LITIGATION AND CONTINGENCIES +The Company is involved in various environmental claims and other legal actions arising in the normal course of business. The environmental claims include sites where the U.S. Environmental Protection Agency has notified the Company that it is a potentially responsible party with respect to environmental remediation. These remediation claims are subject to ongoing environmental impact studies, assessment of remediation alternatives, allocation of costs between responsible parties and concurrence by regulatory authorities and have not yet advanced to a stage where the Company’s liability is fixed. However, after taking into consideration legal counsel’s evaluation of all actions and claims against the Company, it is management’s opinion that the outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +The Company is involved in routine litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment and intellectual property. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is management’s opinion that the outcome of these items will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +59 +Table of Contents +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to January 3, 2015 are as follows: +(In millions) +2015 +2016 +2017 +2018 +2019 +Thereafter +Minimum royalties +$ +1.8 +$ +— +$ +— +$ +— +$ +— +$ +— +Minimum advertising +8.7 +2.7 +2.8 +2.9 +3.0 +6.3 +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.3 million , $ 1.7 million and $ 2.8 million for fiscal years 2014, 2013 and 2012, respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales. In accordance with these agreements, the Company incurred advertising expense of $ 4.1 million , $ 4.4 million and $ 4.1 million for fiscal years 2014, 2013 and 2012, respectively. +15. +BUSINESS SEGMENTS +The Company’s portfolio of brands is organized into the following three operating segments, which the Company has determined are reportable operating segments. +• +Lifestyle Group , consisting of Sperry Top-Sider ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Chaco ® footwear, Patagonia ® footwear and Cushe ® footwear; and +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Reported revenue of the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; income from a network of third-party licensees and distributors; and revenue from the Company’s mono-branded consumer-direct business. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses including acquisition-related transaction and integration costs and restructuring costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The Company allocated goodwill in accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other in connection with the reorganization of the Company’s brand portfolio in the first quarter of fiscal 2013. +The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies set forth in Note 1 to the consolidated financial statements. +60 +Table of Contents +Company management uses various financial measures to evaluate the performance of the reportable operating segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) +2014 +2013 +2012 +Revenue: +Lifestyle Group +$ +1,059.3 +$ +1,086.6 +$ +309.6 +Performance Group +990.7 +945.8 +674.6 +Heritage Group +607.0 +567.4 +563.9 +Other +104.1 +91.3 +92.7 +Total +$ +2,761.1 +$ +2,691.1 +$ +1,640.8 +Operating profit (loss): +Lifestyle Group +$ +130.2 +$ +168.2 +$ +44.6 +Performance Group +197.6 +179.8 +128.4 +Heritage Group +95.4 +85.7 +83.5 +Other +3.9 +0.2 +(1.1 +) +Corporate +(197.2 +) +(241.6 +) +(141.7 +) +Total +$ +229.9 +$ +192.3 +$ +113.7 +Depreciation and amortization expense: +Lifestyle Group +$ +7.5 +$ +6.5 +$ +2.0 +Performance Group +3.5 +3.7 +3.0 +Heritage Group +1.1 +1.2 +1.2 +Other +4.0 +4.1 +4.0 +Corporate +37.2 +40.7 +17.5 +Total +$ +53.3 +$ +56.2 +$ +27.7 +Capital expenditures: +Lifestyle Group +$ +9.1 +$ +18.3 +$ +1.7 +Performance Group +3.6 +3.3 +1.9 +Heritage Group +0.5 +0.9 +0.3 +Other +4.3 +5.4 +2.5 +Corporate +12.5 +13.8 +8.5 +Total +$ +30.0 +$ +41.7 +$ +14.9 +(In millions) +January 3, +2015 +December 28, +2013 +December 29, +2012 +Total assets: +Lifestyle Group +$ +1,378.8 +$ +1,431.1 +$ +1,338.3 +Performance Group +485.8 +476.4 +513.7 +Heritage Group +246.4 +247.2 +319.0 +Other +52.1 +56.9 +80.8 +Corporate +341.4 +410.6 +362.6 +Total +$ +2,504.5 +$ +2,622.2 +$ +2,614.4 +Goodwill: +Lifestyle Group +$ +323.8 +$ +329.0 +$ +349.5 +Performance Group +92.5 +92.8 +87.0 +Heritage Group +22.5 +23.5 +23.4 +Total +$ +438.8 +$ +445.3 +$ +459.9 +61 +Table of Contents +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) +2014 +2013 +2012 +United States +$ +1,990.2 +$ +1,984.8 +$ +1,079.9 +Foreign: +Europe, Middle East and Africa +391.0 +362.0 +310.1 +Canada +163.0 +166.2 +112.6 +Other +216.9 +178.1 +138.2 +Total from foreign territories +770.9 +706.3 +560.9 +Total revenue +$ +2,761.1 +$ +2,691.1 +$ +1,640.8 +The location of the Company’s tangible long-lived assets (primarily property, plant and equipment) is as follows: +(In millions) +January 3, +2015 +December 28, +2013 +December 29, +2012 +United States +$ +126.8 +$ +136.7 +$ +136.8 +Foreign countries +10.0 +15.2 +14.2 +Total +$ +136.8 +$ +151.9 +$ +151.0 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2014, the Company sourced approximately 99% of its footwear products from third-party suppliers located primarily in the Asia Pacific region. For fiscal 2014, the remainder was produced at Company-owned manufacturing facilities in the U.S. All apparel and accessories are sourced from third-party suppliers. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +16. +RESTRUCTURING ACTIVITIES +2014 Restructuring Activities +On July 9, 2014, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations. As a part of the 2014 Plan, the Company intends to close up to 140 retail stores by the end of fiscal 2015, consolidate certain consumer-direct support functions and implement certain other organizational changes. The Company estimates pretax charges related to the 2014 Plan will range from $ 26.6 million to $ 32.0 million . The Company will record the remaining charges in fiscal 2015 as it executes specific components of the 2014 Plan. Approximately $ 9.6 million to $ 11.6 million of this estimate represents non-cash charges. Once fully implemented, the Company expects annual pretax benefits of approximately $ 11.0 million as a result of the 2014 Plan. +The Company closed 58 retail stores in connection with the 2014 Plan during fiscal 2014. The balance of the estimated 140 total store closures are expected to occur in fiscal 2015, with the majority of closures occurring during the fourth quarter of fiscal 2015. +The following is a summary of the activity with respect to a reserve established by the Company in connection with the 2014 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at December 28, 2013 +$ +— +$ +— +$ +— +$ +— +Restructuring costs +2.6 +5.5 +13.1 +21.2 +Amounts paid +(1.6 +) +— +(3.4 +) +(5.0 +) +Charges against assets +— +(5.5 +) +(3.2 +) +(8.7 +) +Balance at January 3, 2015 +$ +1.0 +$ +— +$ +6.5 +$ +7.5 +62 +Table of Contents +As part of the 2014 Plan, property and equipment related to retail stores was measured at fair value on a nonrecurring basis using significant unobservable inputs. The following is a summary of the fair value of the assets and the impairment recognized during fiscal 2014. +(In millions) +Fair Value +Impairment +Property and equipment +$ +0.6 +$ +5.5 +The property and equipment was valued using an income approach based on the discounted cash flows of the associated retail store locations (Level 3). See Note 10 to the consolidated financial statements for additional information on Level 3 fair value measurements. +In addition to the amounts recorded under the 2014 Plan, the Company recorded an other-than-temporary impairment of an equity method investment, reserved certain receivables within the Company’s international operations and recorded other exit costs totaling $ 4.8 million during fiscal 2014, of which $1.4 million was a cash cost. +The Company recorded the costs related to the 2014 restructuring activities within its Corporate category in the restructuring costs line item as a component of selling, general and administrative expenses in the consolidated statements of operations. +2013 Restructuring Activities +On October 4, 2013, the Board of Directors of the Company approved a plan to restructure the Company’s Dominican Republic manufacturing operations in a manner intended to lower the Company’s cost of goods sold, as described below (“the 2013 Plan”). During the fourth quarter of fiscal 2013, the Company sold a manufacturing facility in the Dominican Republic and closed a second manufacturing facility. The Company no longer maintains any Company-owned manufacturing operations in the Dominican Republic. The Company recognized $ 7.6 million of restructuring costs in fiscal 2013 and restructuring costs of $ 1.0 million during fiscal 2014. The Company considers the 2013 Plan complete and all costs incurred have been recognized in the Company’s Corporate category and are included in the restructuring costs line item as a component of cost of goods sold in the consolidated statements of operations. +The following is a summary of the activity with respect to a reserve established by the Company in connection with the 2013 Plan, by category of costs. +(In millions) +Severance and employee related +Costs associated with exit or disposal activities +Total +Balance at December 29, 2012 +$ +— +$ +— +$ +— +Restructuring costs +1.4 +6.2 +7.6 +Amounts paid +(1.4 +) +— +(1.4 +) +Charges against assets +— +(5.7 +) +(5.7 +) +Balance at December 28, 2013 +$ +— +$ +0.5 +$ +0.5 +Restructuring costs +0.1 +0.9 +1.0 +Amounts paid +(0.1 +) +(1.2 +) +(1.3 +) +Charges against assets +— +(0.2 +) +(0.2 +) +Balance at January 3, 2015 +$ +— +$ +— +$ +— +In addition to the amounts recorded under the 2013 Plan, the Company recorded an impairment of $ 0.7 million during fiscal 2013 related to certain consumer-direct store assets where the estimated future cash flows did not support the net book value of the store assets. +17. +BUSINESS ACQUISITIONS +On October 9, 2012, the Company acquired all of the outstanding equity interests of PLG as well as certain other assets. Consideration paid to acquire PLG was approximately $ 1,249.5 million in cash. PLG markets casual and athletic footwear, apparel and related accessories for adults and children under well-known brand names including Sperry Top-Sider ® , Saucony ® , Stride Rite ® and Keds ® . The Company accounted for the acquisition under the provisions of FASB ASC Topic 805, Business Combinations . The related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results for PLG are included in the Company’s consolidated results of operations beginning October 9, 2012. +63 +Table of Contents +The Company funded the transaction using a combination of approximately $ 88.8 million of cash on hand and new borrowings. The Company’s debt financing included net proceeds from the term loan debt associated with the Credit Agreement and net proceeds from the senior notes. +For fiscal 2014, the Company incurred $ 15.2 million of acquisition-related integration costs included within selling, general and administrative expenses within the Company’s consolidated statements of operations. These costs include other purchased services ($ 1.1 million ), compensation expenses ($ 3.9 million ) and other integration costs ($ 10.2 million ). For fiscal 2013, the Company incurred $41.5 million of acquisition-related integration costs included within selling, general and administrative expenses within the Company’s consolidated statements of operations. These costs include compensation expenses ( $26.2 million ), other purchased services ( $10.6 million ), amortization expense related to short-lived intangible assets ( $2.4 million ) and professional and legal fees ( $2.3 million ). For fiscal 2012, the Company incurred $42.2 million of acquisition-related transaction and integration costs of which $4.5 million , $32.5 million and $5.2 million were included within cost of goods sold, selling, general, and administrative expenses and interest expense, respectively, within the Company’s consolidated statements of operations. The charge to cost of goods sold of $4.5 million relates to the fair value adjustment to acquisition-date inventory and severance costs. The costs within selling, general and administrative expenses include professional and legal fees ( $14.9 million ), taxes paid on behalf of the seller ( $9.7 million ), other purchased services ( $5.2 million ) and severance ( $2.7 million ). The $5.2 million of interest expense includes an acquisition-related financing commitment fee and refinancing fees associated with the Company’s acquisition of PLG. +During the measurement period, the Company made certain post-closing adjustments related to the valuation of a receivable due from the seller, other assets and accruals, intangible assets and deferred income taxes that resulted in a net reduction to goodwill of $ 10.8 million . The following table summarizes the final fair values of the assets acquired and liabilities assumed in connection with the PLG acquisition. +(In millions) +Initial valuation at +December 29, 2012 +Measurement +period +adjustments +Final valuation at December 28, 2013 +Cash +$ +23.6 +$ +— +$ +23.6 +Accounts receivable +146.9 +4.3 +151.2 +Inventories +203.5 +— +203.5 +Deferred income taxes +13.6 +— +13.6 +Other current assets +13.2 +— +13.2 +Property, plant and equipment +77.1 +— +77.1 +Goodwill +419.6 +(10.8 +) +408.8 +Intangible assets +820.6 +1.2 +821.8 +Other +11.2 +— +11.2 +Total assets acquired +1,729.3 +(5.3 +) +1,724.0 +Accounts payable +97.4 +— +97.4 +Other accrued liabilities +40.0 +2.2 +42.2 +Deferred income taxes +294.7 +(7.5 +) +287.2 +Accrued pension liabilities +37.7 +— +37.7 +Other liabilities +10.0 +— +10.0 +Total liabilities assumed +479.8 +(5.3 +) +474.5 +Net assets acquired +$ +1,249.5 +$ +— +$ +1,249.5 +The excess of the purchase price over the fair value of net assets acquired of $ 408.8 million was recorded as goodwill in the consolidated balance sheets and has been assigned to the Performance Group and Lifestyle Group reportable operating segments as follows: +(In millions) +Goodwill from the acquisition of PLG +Performance Group +$ +82.5 +Lifestyle Group +326.3 +Total +$ +408.8 +The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of PLG. Substantially all of the goodwill is not amortizable for income tax purposes. +64 +Table of Contents +Intangible assets acquired in the PLG acquisition were valued as follows: +(In millions) +Intangible asset +Useful life +Trade names and trademarks +$ +671.8 +Indefinite +Customer lists +100.5 +3-20 years +Licensing agreements +28.8 +4-5 years +Developed product technology +14.9 +3-5 years +Backlog +5.2 +6 months +Net favorable leases +0.6 +10 years +Total intangible assets acquired +$ +821.8 +The Company assigned fair values to the identifiable intangible assets through a combination of the relief from royalty and the excess earnings methods. +At the time of the acquisition, a step-up in the value of inventory of $ 4.0 million was recorded in the allocation of the purchase price based on valuation estimates, all of which was charged to cost of sales in the fourth quarter of fiscal 2012 as the inventory was deemed sold. In addition, fixed assets were written up by approximately $ 18.8 million to their estimated fair market value based on a valuation method that included both cost and market approaches. This additional step-up in value is being depreciated over the estimated remaining useful lives of the assets. +18. +SUBSIDIARY GUARANTORS OF THE PUBLIC BONDS +The following tables present consolidated condensed financial information for (a) the Company (for purposes of this discussion and table, “Parent”); (b) the guarantors of the Public Bonds, which include substantially all of the domestic, 100 % owned subsidiaries of the Parent (“Subsidiary Guarantors”); and (c) the wholly- and partially-owned foreign subsidiaries of the Parent, which do not guarantee the Notes (“Non-Guarantor Subsidiaries”). Separate financial statements of the Subsidiary Guarantors are not presented because they are fully and unconditionally, jointly and severally liable under the guarantees, except for normal and customary release provisions. +65 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Operations +For the fiscal year ended January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Revenue +$ +607.8 +$ +3,276.1 +$ +848.8 +$ +(1,971.6 +) +$ +2,761.1 +Cost of goods sold +442.9 +2,594.9 +483.5 +(1,847.5 +) +1,673.8 +Restructuring costs +0.1 +— +0.9 +— +1.0 +Gross profit +164.8 +681.2 +364.4 +(124.1 +) +1,086.3 +Selling, general and administrative expenses +126.1 +555.1 +258.1 +(124.1 +) +815.2 +Acquisition-related integration costs +6.5 +1.1 +7.6 +— +15.2 +Restructuring costs +3.0 +10.4 +12.6 +— +26.0 +Operating profit +29.2 +114.6 +86.1 +— +229.9 +Other expenses: +Interest expense, net +45.4 +0.1 +(0.1 +) +— +45.4 +Debt extinguishment costs +1.3 +— +— +— +1.3 +Other expense (income), net +— +(1.3 +) +3.0 +— +1.7 +Total other expense (income) +46.7 +(1.2 +) +2.9 +— +48.4 +Earnings (loss) before income taxes +(17.5 +) +115.8 +83.2 +— +181.5 +Income tax expense +0.7 +37.7 +9.2 +— +47.6 +Earnings (loss) before equity in earnings of consolidated subsidiaries +(18.2 +) +78.1 +74.0 +— +133.9 +Equity in earnings of consolidated subsidiaries +151.3 +9.4 +74.7 +(235.4 +) +— +Net earnings +133.1 +87.5 +148.7 +(235.4 +) +133.9 +Less: net earnings attributable to noncontrolling interest +— +— +0.8 +— +0.8 +Net earnings attributable to Wolverine World Wide, Inc. +$ +133.1 +$ +87.5 +$ +147.9 +$ +(235.4 +) +$ +133.1 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Comprehensive Income +For the fiscal year ended January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net earnings +$ +133.1 +$ +87.5 +$ +148.7 +$ +(235.4 +) +$ +133.9 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(17.4 +) +— +(18.5 +) +17.4 +(18.5 +) +Change in fair value of foreign exchange contracts +9.4 +— +9.4 +(9.4 +) +9.4 +Change in fair value of interest rate swap +(0.2 +) +— +— +— +(0.2 +) +Pension adjustments +(32.1 +) +(10.3 +) +— +10.3 +(32.1 +) +Other comprehensive income (loss) +(40.3 +) +(10.3 +) +(9.1 +) +18.3 +(41.4 +) +Comprehensive income +92.8 +77.2 +139.6 +(217.1 +) +92.5 +Less: comprehensive (loss) income attributable to noncontrolling interest +— +— +(0.3 +) +— +(0.3 +) +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +92.8 +$ +77.2 +$ +139.9 +$ +(217.1 +) +$ +92.8 +66 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Operations +For the fiscal year ended December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Revenue +$ +538.2 +$ +3,849.1 +$ +774.4 +$ +(2,470.6 +) +$ +2,691.1 +Cost of goods sold +383.8 +3,207.9 +415.4 +(2,388.1 +) +1,619.0 +Restructuring costs +0.1 +— +7.5 +— +7.6 +Gross profit +154.3 +641.2 +351.5 +(82.5 +) +1,064.5 +Selling, general and administrative expenses +139.0 +506.7 +266.8 +(82.5 +) +830.0 +Acquisition-related integration costs +16.9 +14.9 +9.7 +— +41.5 +Restructuring costs +— +— +0.7 +— +0.7 +Operating profit (loss) +(1.6 +) +119.6 +74.3 +— +192.3 +Other expenses: +Interest expense, net +52.1 +(0.2 +) +0.1 +— +52.0 +Debt extinguishment costs +13.1 +— +— +— +13.1 +Other expense (income), net +(3.7 +) +0.1 +3.1 +— +(0.5 +) +Total other expense (income) +61.5 +(0.1 +) +3.2 +— +64.6 +Earnings (loss) before income taxes +(63.1 +) +119.7 +71.1 +— +127.7 +Income tax expense +1.5 +19.3 +5.9 +— +26.7 +Earnings (loss) before equity in earnings of consolidated subsidiaries +(64.6 +) +100.4 +65.2 +— +101.0 +Equity in earnings of consolidated subsidiaries +165.0 +114.5 +21.7 +(301.2 +) +— +Net earnings +100.4 +214.9 +86.9 +(301.2 +) +101.0 +Less: net earnings attributable to noncontrolling interest +— +— +0.6 +— +0.6 +Net earnings attributable to Wolverine World Wide, Inc. +$ +100.4 +$ +214.9 +$ +86.3 +$ +(301.2 +) +$ +100.4 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Comprehensive Income +For the fiscal year ended December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net earnings +$ +100.4 +$ +214.9 +$ +86.9 +$ +(301.2 +) +$ +101.0 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(5.4 +) +— +(5.4 +) +5.4 +(5.4 +) +Change in fair value of foreign exchange contracts +0.9 +— +0.9 +(0.9 +) +0.9 +Change in fair value of interest rate swap +1.6 +— +— +— +1.6 +Pension adjustments +81.2 +13.1 +— +(13.1 +) +81.2 +Other comprehensive income (loss) +78.3 +13.1 +(4.5 +) +(8.6 +) +78.3 +Comprehensive (loss) income +178.7 +228.0 +82.4 +(309.8 +) +179.3 +Less: comprehensive (loss) income attributable to noncontrolling interest +(0.1 +) +— +0.6 +— +0.5 +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +178.8 +$ +228.0 +$ +81.8 +$ +(309.8 +) +$ +178.8 +67 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Operations +For the fiscal year ended December 29, 2012 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Revenue +$ +527.1 +$ +1,065.7 +$ +539.2 +$ +(491.2 +) +$ +1,640.8 +Cost of goods sold +390.6 +780.6 +277.1 +(440.2 +) +1,008.1 +Acquisition-related transaction and integration costs +0.8 +3.7 +— +— +4.5 +Gross profit +135.7 +281.4 +262.1 +(51.0 +) +628.2 +Selling, general and administrative expenses +123.0 +206.0 +204.7 +(51.7 +) +482.0 +Acquisition-related transaction and integration costs +31.3 +1.2 +— +— +32.5 +Operating profit (loss) +(18.6 +) +74.2 +57.4 +0.7 +113.7 +Other expenses: +Interest expense, net +13.9 +(0.2 +) +0.3 +— +14.0 +Acquisition-related interest expense +5.2 +— +— +— +5.2 +Other expense (income), net +0.4 +(0.2 +) +0.1 +— +0.3 +Total other expense (income) +19.5 +(0.4 +) +0.4 +— +19.5 +Earnings (loss) before income taxes +(38.1 +) +74.6 +57.0 +0.7 +94.2 +Income tax expense (benefit) +12.3 +(0.1 +) +1.2 +— +13.4 +Earnings (loss) before equity in earnings of consolidated subsidiaries +(50.4 +) +74.7 +55.8 +0.7 +80.8 +Equity in earnings of consolidated subsidiaries +131.1 +54.4 +61.2 +(246.7 +) +— +Net earnings +80.7 +129.1 +117.0 +(246.0 +) +80.8 +Less: net earnings attributable to noncontrolling interest +— +— +0.1 +— +0.1 +Net earnings attributable to Wolverine World Wide, Inc. +$ +80.7 +$ +129.1 +$ +116.9 +$ +(246.0 +) +$ +80.7 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Comprehensive Income +For the fiscal year ended December 29, 2012 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net earnings +$ +80.7 +$ +129.1 +$ +117.0 +$ +(246.0 +) +$ +80.8 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +5.7 +— +5.7 +(5.7 +) +5.7 +Change in fair value of foreign exchange contracts +(5.0 +) +— +(5.0 +) +5.0 +(5.0 +) +Change in fair value of interest rate swap +(1.0 +) +— +— +— +(1.0 +) +Pension adjustments +(16.2 +) +— +— +— +(16.2 +) +Other comprehensive (loss) income +(16.5 +) +— +0.7 +(0.7 +) +(16.5 +) +Comprehensive income +64.2 +129.1 +117.7 +(246.7 +) +64.3 +Less comprehensive income (loss) attributable to noncontrolling interest +(0.1 +) +— +0.1 +— +— +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +64.3 +$ +129.1 +$ +117.6 +$ +(246.7 +) +$ +64.3 +68 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets +As of January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +ASSETS +Current assets: +Cash and cash equivalents +$ +11.4 +$ +3.3 +$ +209.1 +$ +— +$ +223.8 +Accounts receivable, net +18.8 +181.4 +112.5 +— +312.7 +Inventories: +Finished products, net +59.5 +260.0 +78.6 +— +398.1 +Raw materials and work-in-process, net +2.1 +1.3 +12.5 +— +15.9 +Total inventories +61.6 +261.3 +91.1 +— +414.0 +Deferred income taxes +12.8 +14.0 +1.3 +— +28.1 +Prepaid expenses and other current assets +24.8 +21.4 +17.4 +— +63.6 +Total current assets +129.4 +481.4 +431.4 +— +1,042.2 +Property, plant and equipment: +Gross cost +230.7 +150.7 +33.9 +— +415.3 +Accumulated depreciation +(183.3 +) +(72.6 +) +(22.6 +) +— +(278.5 +) +Property, plant and equipment, net +47.4 +78.1 +11.3 +— +136.8 +Other assets: +Goodwill +7.9 +353.0 +77.9 +— +438.8 +Indefinite-lived intangibles +4.3 +674.9 +11.3 +— +690.5 +Amortizable intangibles, net +0.6 +111.5 +— +— +112.1 +Deferred income taxes +— +— +2.8 +— +2.8 +Deferred financing costs, net +16.5 +— +— +— +16.5 +Other +49.8 +11.9 +3.1 +— +64.8 +Intercompany accounts receivable +22.1 +2,225.4 +621.1 +(2,868.6 +) +— +Investment in affiliates +3,158.2 +608.8 +1,221.3 +(4,988.3 +) +— +Total other assets +3,259.4 +3,985.5 +1,937.5 +(7,856.9 +) +1,325.5 +Total assets +$ +3,436.2 +$ +4,545.0 +$ +2,380.2 +$ +(7,856.9 +) +$ +2,504.5 +69 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets - continued +As of January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +37.5 +$ +66.4 +$ +45.5 +$ +— +$ +149.4 +Accrued salaries and wages +23.2 +6.0 +6.9 +— +36.1 +Other accrued liabilities +31.6 +40.9 +36.0 +— +108.5 +Current maturities of long-term debt +46.7 +— +— +— +46.7 +Total current liabilities +139.0 +113.3 +88.4 +— +340.7 +Long-term debt, less current maturities +853.5 +0.6 +— +— +854.1 +Accrued pension liabilities +106.6 +21.5 +— +— +128.1 +Deferred income taxes +(60.7 +) +274.7 +3.0 +— +217.0 +Other liabilities +13.3 +10.6 +2.7 +— +26.6 +Intercompany accounts payable +1,451.0 +734.5 +683.1 +(2,868.6 +) +— +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity +933.5 +3,389.8 +1,598.5 +(4,988.3 +) +933.5 +Noncontrolling interest +— +— +4.5 +— +4.5 +Total stockholders’ equity +933.5 +3,389.8 +1,603.0 +(4,988.3 +) +938.0 +Total liabilities and stockholders’ equity +$ +3,436.2 +$ +4,545.0 +$ +2,380.2 +$ +(7,856.9 +) +$ +2,504.5 +70 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets +As of December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +ASSETS +Current assets: +Cash and cash equivalents +$ +18.8 +$ +15.0 +$ +180.4 +$ +— +$ +214.2 +Accounts receivable, net +63.9 +213.2 +121.0 +— +398.1 +Inventories: +Finished products, net +55.0 +270.8 +81.0 +(0.8 +) +406.0 +Raw materials and work-in-process, net +(0.1 +) +0.9 +21.4 +— +22.2 +Total inventories +54.9 +271.7 +102.4 +(0.8 +) +428.2 +Deferred income taxes +15.3 +12.6 +1.2 +— +29.1 +Prepaid expenses and other current assets +26.9 +11.1 +10.4 +— +48.4 +Total current assets +179.8 +523.6 +415.4 +(0.8 +) +1,118.0 +Property, plant and equipment: +Gross cost +223.7 +143.2 +49.2 +— +416.1 +Accumulated depreciation +(174.4 +) +(57.4 +) +(32.4 +) +— +(264.2 +) +Property, plant and equipment, net +49.3 +85.8 +16.8 +— +151.9 +Other assets: +Goodwill +7.7 +354.3 +83.3 +— +445.3 +Indefinite-lived intangibles +4.4 +674.7 +11.4 +— +690.5 +Amortizable intangibles, net +0.2 +126.4 +0.1 +— +126.7 +Deferred income taxes +— +— +3.4 +— +3.4 +Deferred financing costs, net +22.0 +— +— +— +22.0 +Other +46.0 +12.3 +5.3 +0.8 +64.4 +Intercompany accounts receivable +— +1,445.4 +347.5 +(1,792.9 +) +— +Investment in affiliates +3,033.2 +555.6 +393.5 +(3,982.3 +) +— +Total other assets +3,113.5 +3,168.7 +844.5 +(5,774.4 +) +1,352.3 +Total assets +$ +3,342.6 +$ +3,778.1 +$ +1,276.7 +$ +(5,775.2 +) +$ +2,622.2 +71 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets - continued +As of December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +31.6 +$ +61.7 +$ +41.9 +$ +— +$ +135.2 +Accrued salaries and wages +27.0 +8.6 +5.9 +— +41.5 +Other accrued liabilities +40.8 +22.1 +36.4 +— +99.3 +Current maturities of long-term debt +53.3 +— +— +— +53.3 +Total current liabilities +152.7 +92.4 +84.2 +— +329.3 +Long-term debt, less current maturities +1,096.7 +— +— +— +1,096.7 +Accrued pension liabilities +60.9 +13.3 +— +— +74.2 +Deferred income taxes +(38.2 +) +287.7 +4.4 +— +253.9 +Other liabilities +12.4 +11.5 +2.8 +— +26.7 +Intercompany accounts payable +1,220.5 +153.7 +418.7 +(1,792.9 +) +— +Stockholders’ equity: +Wolverine World Wide, Inc. stockholders’ equity +837.6 +3,219.5 +762.8 +(3,982.3 +) +837.6 +Noncontrolling interest +— +— +3.8 +— +3.8 +Total stockholders’ equity +837.6 +3,219.5 +766.6 +(3,982.3 +) +841.4 +Total liabilities and stockholders’ equity +$ +3,342.6 +$ +3,778.1 +$ +1,276.7 +$ +(5,775.2 +) +$ +2,622.2 +72 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Cash Flow +For the fiscal year ended January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net cash provided by operating activities +$ +274.1 +$ +9.1 +$ +31.4 +$ +— +$ +314.6 +Investing activities +Additions to property, plant and equipment +(7.7 +) +(19.6 +) +(2.7 +) +— +(30.0 +) +Investment in joint ventures +— +— +(1.1 +) +— +(1.1 +) +Other +(2.4 +) +(1.2 +) +(0.1 +) +— +(3.7 +) +Net cash used in investing activities +(10.1 +) +(20.8 +) +(3.9 +) +— +(34.8 +) +Financing activities +Payments of long-term debt +(249.8 +) +— +— +— +(249.8 +) +Cash dividends paid +(24.0 +) +— +— +— +(24.0 +) +Purchases of shares under employee stock plans +(10.5 +) +— +— +— +(10.5 +) +Proceeds from the exercise of stock options +7.3 +— +— +— +7.3 +Excess tax benefits from stock-based compensation +5.6 +— +— +— +5.6 +Contributions from noncontrolling interest +— +— +1.0 +— +1.0 +Net cash (used in) provided by financing activities +(271.4 +) +— +1.0 +— +(270.4 +) +Effect of foreign exchange rate changes +— +— +0.2 +— +0.2 +Increase (decrease) in cash and cash equivalents +(7.4 +) +(11.7 +) +28.7 +— +9.6 +Cash and cash equivalents at beginning of the year +18.8 +15.0 +180.4 +— +214.2 +Cash and cash equivalents at end of the year +$ +11.4 +$ +3.3 +$ +209.1 +$ +— +$ +223.8 +73 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Cash Flow +For the fiscal year ended December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net cash provided by (used in) operating activities +$ +127.1 +$ +(10.0 +) +$ +85.2 +$ +— +$ +202.3 +Investing activities +Additions to property, plant and equipment +(11.9 +) +(25.0 +) +(4.8 +) +— +(41.7 +) +Proceeds from sale of property, plant and equipment +— +2.8 +— +2.8 +Investment in joint ventures +— +— +(2.5 +) +— +(2.5 +) +Other +(2.9 +) +(1.3 +) +0.9 +— +(3.3 +) +Net cash (used in) investing activities +(14.8 +) +(23.5 +) +(6.4 +) +— +(44.7 +) +Financing activities +Borrowings of long-term debt +775.0 +— +— +— +775.0 +Payments of long-term debt +(875.0 +) +— +— +— +(875.0 +) +Payments of debt issuance costs +(2.3 +) +— +— +— +(2.3 +) +Cash dividends paid +(23.7 +) +— +— +— +(23.7 +) +Purchases of shares under employee stock plans +(0.8 +) +— +— +— +(0.8 +) +Proceeds from the exercise of stock options +8.6 +— +— +— +8.6 +Excess tax benefits from stock-based compensation +3.4 +— +— +— +3.4 +Contributions from noncontrolling interest +— +— +2.0 +— +2.0 +Net cash provided by (used in) financing activities +(114.8 +) +— +2.0 +— +(112.8 +) +Effect of foreign exchange rate changes +— +— +(2.0 +) +— +(2.0 +) +Increase (decrease) in cash and cash equivalents +(2.5 +) +(33.5 +) +78.8 +— +42.8 +Cash and cash equivalents at beginning of the year +21.3 +48.5 +101.6 +— +171.4 +Cash and cash equivalents at end of the year +$ +18.8 +$ +15.0 +$ +180.4 +$ +— +$ +214.2 +74 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Cash Flow +For the fiscal year ended December 29, 2012 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net cash provided by operating activities +$ +11.0 +$ +26.0 +$ +54.6 +$ +— +$ +91.6 +Investing activities +Business acquisition, net of cash acquired +(1,160.7 +) +23.6 +(88.8 +) +— +(1,225.9 +) +Additions to property, plant and equipment +(10.8 +) +(4.1 +) +— +— +(14.9 +) +Investment in joint venture +— +— +(2.9 +) +— +(2.9 +) +Other +(2.4 +) +— +— +— +(2.4 +) +Net cash (used in) provided by investing activities +(1,173.9 +) +19.5 +(91.7 +) +— +(1,246.1 +) +Financing activities +Net repayments under revolving credit agreement +(11.0 +) +— +— +— +(11.0 +) +Borrowings of long-term debt +1,275.0 +— +— +— +1,275.0 +Payments of long-term debt +(25.0 +) +— +(0.5 +) +— +(25.5 +) +Payments of debt issuance costs +(40.1 +) +— +— +— +(40.1 +) +Cash dividends paid +(23.6 +) +— +— +— +(23.6 +) +Purchase of common stock for treasury +(2.4 +) +— +— +— +(2.4 +) +Purchases of shares under employee stock plans +(11.7 +) +— +— +— +(11.7 +) +Proceeds from the exercise of stock options +11.6 +— +— +— +11.6 +Excess tax benefits from stock-based compensation +9.9 +— +— +— +9.9 +Contributions from noncontrolling interest +— +— +1.2 +— +1.2 +Net cash provided by financing activities +1,182.7 +— +0.7 +— +1,183.4 +Effect of foreign exchange rate changes +— +— +2.5 +— +2.5 +Increase (decrease) in cash and cash equivalents +19.8 +45.5 +(33.9 +) +— +31.4 +Cash and cash equivalents at beginning of the year +1.5 +3.0 +135.5 +— +140.0 +Cash and cash equivalents at end of the year +$ +21.3 +$ +48.5 +$ +101.6 +$ +— +$ +171.4 +75 +Table of Contents +19. +QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) +The Company reports its quarterly results of operations on the basis of 12-week periods for each of the first three fiscal quarters and a 16- or 17-week period for the fiscal fourth quarter. The fourth quarter of fiscal 2014 consists of 17 weeks and the fourth quarter of fiscal 2013 consists of 16 weeks. The aggregate quarterly earnings per share amounts disclosed in the table below may not equal the annual per share amounts due to rounding and the fact that results for each quarter are calculated independently of the full fiscal year. The Company’s unaudited quarterly results of operations are as follows: +Fiscal 2014 +(In millions, except per share data) +First +Quarter +Second +Quarter +Third +Quarter +Fourth +Quarter +Revenue +$ +627.6 +$ +613.5 +$ +711.1 +$ +808.9 +Gross profit +255.8 +245.7 +284.7 +300.1 +Net earnings attributable to Wolverine World Wide, Inc. +37.1 +27.5 +57.8 +10.7 +Net earnings per share: +Basic +$ +0.37 +$ +0.28 +$ +0.58 +$ +0.11 +Diluted +0.36 +0.27 +0.57 +0.10 +Fiscal 2013 +(In millions, except per share data) +First +Quarter +Second +Quarter +Third +Quarter +Fourth +Quarter +Revenue +$ +645.9 +$ +587.8 +$ +716.6 +$ +740.8 +Gross profit +262.1 +241.1 +286.0 +275.3 +Net earnings (loss) attributable to Wolverine World Wide, Inc. +29.8 +17.9 +54.4 +(1.7 +) +Net earnings (loss) per share: +Basic +$ +0.30 +$ +0.18 +$ +0.55 +$ +(0.02 +) +Diluted +0.30 +0.18 +0.54 +(0.02 +) +76 +Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders of Wolverine World Wide, Inc. +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries as of January 3, 2015 and December 28, 2013, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 3, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. +We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. +In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wolverine World Wide, Inc. and subsidiaries at January 3, 2015 and December 28, 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 3, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Wolverine World Wide, Inc.’s internal control over financial reporting as of January 3, 2015, based on criteria established in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2015 expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +Grand Rapids, Michigan +March 3, 2015 +77 +Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders of Wolverine World Wide, Inc. +We have audited Wolverine World Wide Inc.’s internal control over financial reporting as of January 3, 2015, based on criteria established in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Wolverine World Wide, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. +We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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. +In our opinion, Wolverine World Wide, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 3, 2015, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries as of January 3, 2015 and December 28, 2013, and the related consolidated statements of operations, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended January 3, 2015, and our report dated March 3, 2015 expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +Grand Rapids, Michigan +March 3, 2015 +78 +Table of Contents +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of January 3, 2015 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 3, 2015. +The effectiveness of the Company’s internal control over financial reporting as of January 3, 2015 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the seventeen-week period ended January 3, 2015 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. +Other Information +None. +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +The Company’s Audit Committee is comprised of three Board members, all of whom are independent under independence standards adopted by the Board and applicable SEC regulations and New York Stock Exchange standards (including independence standards related specifically to Audit Committee membership). The Audit Committee members each have financial and business experience with companies of substantial size and complexity and have an understanding of financial statements, internal controls and audit committee functions. The Company’s Board of Directors has determined that Jeffrey M. Boromisa and William K. Gerber are audit committee financial experts, as defined by the SEC. Additional information regarding the Audit Committee is provided in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , under the caption “Corporate Governance” under the subheading “Board Committees.” +The Company has adopted an Accounting and Finance Code of Ethics that applies to the Company’s principal executive officer, principal financial officer and principal accounting officer, and has adopted a Code of Conduct & Compliance that applies to the Company’s directors and employees. The Accounting and Finance Code of Ethics and the Code of Conduct & Compliance are available on the Company’s website at www.wolverineworldwide.com/investor-relations/corporate-governance . Any waiver from the Accounting and Finance Code of Ethics or the Code of Conduct & Compliance with respect to the Company’s executive officers and directors will be disclosed on the Company’s website. Any amendment to the Accounting and Finance Code of Ethics and the Code of Conduct & Compliance will be disclosed on the Company’s website. +The information regarding directors of the Company contained under the caption “Board of Directors” in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. +79 +Table of Contents +The information regarding directors and executive officers of the Company under the caption “Additional Information” under the subheading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. +Item 11. +Executive Compensation +The information contained under the captions “Non-Employee Director Compensation in Fiscal Year 2014 ,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Summary Compensation Table,” “Grants of Plan-Based Awards in Fiscal Year 2014 ,” “Outstanding Equity Awards at 2014 Fiscal Year-End,” “Option Exercises and Stock Vested in Fiscal Year 2014 ,” “Pension Plans and 2014 Pension Benefits” and “Potential Payments Upon Termination or Change in Control” in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. The information contained under the caption “Corporate Governance” under the subheadings “Risk Considerations in Compensation Programs” and “Board Committees” in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is also incorporated herein by reference. +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information contained under the caption “Securities Ownership of Officers and Directors and Certain Beneficial Owners” and “Equity Compensation Plan Information” contained in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. +Equity Compensation Plan Information +The following table provides information about the Company’s equity compensation plans as of January 3, 2015 : +Plan Category (1) +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights +(a) +Weighted Average Exercise Price of Outstanding Options, Warrants and Rights +(b) +Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans Excluding Securities Reflected in Column (a)) +(c) +Equity compensation plans approved by security holders +6,397,993 +(2), (3) +$18.36 +7,918,403 +(4) +Equity compensation plans not approved by security holders +— +— +— +Total +6,397,993 +$18.36 +7,918,403 +(1) +Each plan for which aggregated information is provided contains customary anti-dilution provisions that are applicable in the event of a stock split, stock dividend or certain other changes in the Company’s capitalization. +(2) +Includes: (i) 5,863,065 stock options awarded to employees under the Amended and Restated Stock Incentive Plan of 1999, the Amended and Restated Stock Incentive Plan of 2001, the Amended and Restated Stock Incentive Plan of 2003, the Amended and Restated Stock Incentive Plan of 2005, the Stock Incentive Plan of 2010 and the Stock Incentive Plan of 2013; and (ii) and 534,928 stock options awarded to non-employee directors under the Stock Incentive Plan of 2013, Stock Incentive Plan of 2010, the Amended and Restated Stock Incentive Plan of 2005 and the Amended and Restated Directors’ Stock Option Plan last approved by stockholders in 2002. Column (a) does not include stock units credited to outside directors’ fee accounts or retirement accounts under the Outside Directors’ Deferred Compensation Plan. Stock units do not have an exercise price. Each stock unit credited to a director’s fee account and retirement account under the Outside Directors’ Deferred Compensation Plan will be converted into one share of common stock upon distribution. Column (a) also does not include shares of restricted or unrestricted common stock previously issued under the Company’s equity compensation plans. +(3) +Of this amount, 2,047,294 options were not exercisable as of January 3, 2015 due to vesting restrictions. +(4) +Comprised of: (i) 253,575 shares available for issuance under the Outside Directors’ Deferred Compensation Plan upon the retirement of the current directors or upon a change in control; and (ii) 7,664,828 shares issuable under the Stock Incentive Plan of 2013. +The Outside Directors’ Deferred Compensation Plan is a supplemental, unfunded, nonqualified deferred compensation plan for non-employee directors. Beginning in 2006, the Company began paying an annual equity retainer to non-management directors in the form of a contribution under the Outside Directors’ Deferred Compensation Plan. Non-management directors may also voluntarily elect to receive, in lieu of some or all directors’ fees, a number of stock units equal to the amount of the deferred directors’ fees divided by the fair market value of the Company’s common stock on the date of payment of the next cash dividend on the Company’s common stock. These stock units are increased by a dividend equivalent based on dividends paid by the Company and the amount of stock units credited to the participating director’s fee account and retirement account. Upon distribution, the +80 +Table of Contents +participating directors receive a number of shares of the Company’s common stock equal to the number of stock units to be distributed at that time. Distribution is triggered by termination of service as a director or by a change in control of the Company and can occur in a lump sum, in installments or on another deferred basis. A total of 441,302 shares have been issued to a trust to satisfy the Company’s obligations when distribution is triggered and are included in shares the Company reports as issued and outstanding. +The Stock Incentive Plan of 2013 is an equity-based incentive plan for officers, key employees, and directors. The Stock Incentive Plan of 2013 authorizes awards of stock options, restricted common stock, common stock, restricted stock units and/or stock appreciation rights. The Stock Incentive Plan of 2013 provides that each share of restricted or unrestricted common stock and each restricted stock unit issued under the plan is counted as 2.6 shares against the total number of shares authorized for issuance under the plan. The number of securities listed as remaining available in column (c) of the table assumes only stock options will be issued under the plan in the future; each stock option counts as only one share against the total number of shares authorized for issuance under the plan. Actual shares available under the plan will be less to the extent that the Company awards restricted common stock, unrestricted common stock or restricted stock units under the plan. The numbers provided in this footnote and in column (c) will increase to the extent that options relating to the number of shares listed in column (a) of the table or other outstanding awards (e.g., shares of restricted or unrestricted stock, restricted stock units or stock appreciation rights) previously issued under the plan are canceled, surrendered, modified, exchanged for substitutes, expire or terminate prior to exercise or vesting because the number of shares underlying any such awards will again become available for issuance under the plan under which the award was granted. +Of the total number of shares available under column (c), the number of shares with respect to the following plans may be issued other than upon the exercise of an option, warrant or right outstanding as of January 3, 2015 : +• +Outside Directors’ Deferred Compensation Plan: 253,575 +• +Stock Incentive Plan of 2013: 2,948,011 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information contained under the caption “Related Party Matters” under the subheadings “Certain Relationships and Related Transactions” and “Related Person Transactions Policy” contained in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. The information contained under the caption “Corporate Governance” under the subheading “Director Independence” contained in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. +Item 14. +Principal Accounting Fees and Services +The information contained under the caption “Independent Registered Public Accounting Firm” in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. +81 +Table of Contents +PART IV +Item 15. +Exhibits, Financial Statement Schedules +(a) +The following documents are filed as part of this report: +(1) +Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• +Consolidated Statements of Operations for the Fiscal Years Ended January 3, 2015 , December 28, 2013 and December 29, 2012 . +• +Consolidated Statements of Comprehensive Income for the Fiscal Years Ended January 3, 2015 , December 28, 2013 and December 29, 2012 . +• +Consolidated Balance Sheets as of January 3, 2015 and December 28, 2013 . +• +Consolidated Statements of Cash Flows for the Fiscal Years Ended January 3, 2015 , December 28, 2013 and December 29, 2012 . +• +Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 3, 2015 , December 28, 2013 and December 29, 2012 . +• +Notes to the Consolidated Financial Statements. +• +Reports of Independent Registered Public Accounting Firm. +(2) +Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• +Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) +Exhibits +See the Exhibit Index included in this Form 10-K for the exhibits filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed in the Exhibit Index to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +82 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: +March 3, 2015 +By: +/s/ Blake W. Krueger +Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +March 3, 2015 +Blake W. Krueger +/s/ Donald T. Grimes +Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) +March 3, 2015 +Donald T. Grimes +*/s/ Jeffrey M. Boromisa +Director +March 3, 2015 +Jeffrey M. Boromisa +*/s/ Gina R. Boswell +Director +March 3, 2015 +Gina R. Boswell +*/s/ Roxane Divol +Director +March 3, 2015 +Roxane Divol +*/s/ William K. Gerber +Director +March 3, 2015 +William K. Gerber +*/s/ Joseph R. Gromek +Director +March 3, 2015 +Joseph R. Gromek +*/s/ David T. Kollat +Director +March 3, 2015 +David T. Kollat +*/s/ Brenda J. Lauderback +Director +March 3, 2015 +Brenda J. Lauderback +*/s/ Nicholas T. Long +Director +March 3, 2015 +Nicholas T. Long +*/s/ Timothy J. O’Donovan +Director +March 3, 2015 +Timothy J. O’Donovan +*/s/ Michael A. Volkema +Director +March 3, 2015 +Michael A. Volkema +*By: +/s/ Blake W. Krueger +Attorney-in-Fact +March 3, 2015 +Blake W. Krueger +83 +Table of Contents +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +Column A +Column B +Column C +Column D +Column E +Additions +(In millions) +Balance at +Beginning of +Period +(1) +Charged to +Costs and +Expenses +(2) +Charged to +Other +Accounts +(Describe) +Deductions +(Describe) +Balance at +End of +Period +Fiscal year ended January 3, 2015 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +18.3 +$ +34.9 +— +$ +32.6 +(A) +$ +20.6 +Allowance for sales returns +15.4 +68.9 +— +68.4 +(B) +15.9 +Allowance for cash discounts +4.1 +19.7 +— +19.3 +(C) +4.5 +Inventory valuation allowances +14.0 +14.0 +— +16.6 +(D) +11.4 +Total +$ +51.8 +$ +137.5 +— +$ +136.9 +$ +52.4 +Fiscal year ended December 28, 2013 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +10.1 +$ +21.1 +— +$ +12.9 +(A) +$ +18.3 +Allowance for sales returns +11.4 +74.6 +— +70.6 +(B) +15.4 +Allowance for cash discounts +5.2 +19.2 +— +20.3 +(C) +4.1 +Inventory valuation allowances +12.5 +11.3 +— +9.8 +(D) +14.0 +Total +$ +39.2 +$ +126.2 +— +$ +113.6 +$ +51.8 +Fiscal year ended December 29, 2012 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +4.8 +$ +8.7 +— +$ +3.4 +(A) +$ +10.1 +Allowance for sales returns +5.2 +53.9 +— +47.7 +(B) +11.4 +Allowance for cash discounts +2.7 +11.8 +— +9.3 +(C) +5.2 +Inventory valuation allowances +10.3 +7.8 +— +5.6 +(D) +12.5 +Total +$ +23.0 +$ +82.2 +— +$ +66.0 +$ +39.2 +(A) +Accounts charged off, net of recoveries. +(B) +Actual customer returns. +(C) +Discounts given to customers. +(D) +Adjustment upon disposal of related inventories. +A-1 +Table of Contents +EXHIBIT INDEX +Exhibit Number +Document +2.1 +Agreement and Plan of Merger, dated as of May 1, 2012, by and among WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Collective Brands, Inc. and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +3.1 +Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on October 11, 2013. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 19, 2015. +4.1 +Senior Notes Indenture, dated October 9, 2012, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +4.2 +Form of 6.125% Senior Note due 2020. Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +4.3 +Registration Rights Agreement, dated October 9, 2012, among the Wolverine World Wide, Inc., the guarantors named therein and J.P. Morgan Securities LLC, as representative of the several initial purchasers. Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.1 +Amended and Restated Stock Incentive Plan of 1999.* Incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.2 +Amended and Restated Stock Incentive Plan of 2001.* Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.3 +Amended and Restated Stock Incentive Plan of 2003.* Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.4 +Amended and Restated Stock Incentive Plan of 2005.* Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.5 +Amended and Restated Directors’ Stock Option Plan.* Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.6 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.7 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 20, 2012. +10.8 +Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2012. +10.9 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.10 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.10. +10.11 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.11 +10.12 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and executive officer. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.13 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.14 +Employees’ Pension Plan (Restated as amended through December 23, 2014).* +10.15 +Form of Incentive Stock Option Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +10.16 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +10.17 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +10.18 +Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +E-1 +Table of Contents +Exhibit Number +Document +10.19 +Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 16, 2012. +10.20 +Form of Stock Option Agreement for non-employee directors.* Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005. +10.21 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.22 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.23 +Form of Performance Share Award Agreement (2013 - 2015 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the fiscal quarter ended June 14, 2014. +10.24 +Form of Performance Share Award Agreement (2014 - 2016 performance period).* Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the fiscal quarter ended June 14, 2014. +10.25 +Form of Performance Share Award Agreement (2015 - 2017 performance period).* +10.26 +Form of Performance Share Award Agreement (2015 performance period) for Blake W. Krueger.* +10.27 +Form of Performance Share Award Agreement (2015 - 2016 performance period) for Blake W. Krueger.* +10.28 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.29 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.30 +409A Supplemental Executive Retirement Plan.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.30. +10.31 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.32 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.33 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.34 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.35 +Limited Guarantee, dated as of May 1, 2012, entered into by Wolverine World Wide, Inc. in favor of Collective Brands, Inc. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.36 +Purchase Agreement, dated as of May 1, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.37 +Interim Agreement, dated as of May 1, 2012, by and among Wolverine World Wide, Inc., WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Golden Gate Capital Opportunity Fund, L.P. and Blum Strategic Partners IV, L.P. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.38 +Separation Agreement, dated as of May 1, 2012, by and between Wolverine World Wide, Inc. and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.39 +Amendment No. 1 to Separation Agreement, dated as of October 9, 2012, by and between the Company and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.40 +Amendment No. 1 to Purchase Agreement, dated as of October 9, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended September 8, 2012. +E-2 +Table of Contents +Exhibit Number +Document +10.41 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.42 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.43 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.44 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.45 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. +10.46 +Receivables Sales Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. +21 +Subsidiaries of Registrant. +23 +Consent of Ernst & Young LLP. +24 +Powers of Attorney. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101.INS +XBRL Instance Document +101.SCH +XBRL Taxonomy Extension Schema Document +101.CAL +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +XBRL Taxonomy Extension Label Linkbase Document +101.PRE +XBRL Taxonomy Extension Presentation Linkbase Document +* +Management contract or compensatory plan or arrangement. +E-3 \ No newline at end of file diff --git a/raw/filings/0000110471/2014/0000110471-15-000012/filing_metadata.csv b/raw/filings/0000110471/2014/0000110471-15-000012/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..1fe31bc7dc906c1cb0883678d7125cf2807d7ee8 --- /dev/null +++ b/raw/filings/0000110471/2014/0000110471-15-000012/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2015-03-03,2015-01-03,2015-03-03T19:06:21.000Z,0000110471-15-000012,wolverineform10-k2014.htm,FORM 10-K,29924420,1,0,https://www.sec.gov/Archives/edgar/data/110471/000011047115000012/wolverineform10-k2014.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047115000012/,2014,2014,1 diff --git a/raw/filings/0000110471/2014/0000110471-15-000012/item1.txt b/raw/filings/0000110471/2014/0000110471-15-000012/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..0125b06bf907c82824fac4314592c183a5aece35 --- /dev/null +++ b/raw/filings/0000110471/2014/0000110471-15-000012/item1.txt @@ -0,0 +1,102 @@ +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through Company-owned wholesale and consumer-direct operations and through third-party licensees and distributors. +In October 2012, the Company acquired the Performance + Lifestyle business of Collective Brands, Inc. ("PLG" or the "PLG Acquisition"), which included the acquisition of the Sperry Top-Sider ® , Saucony ® , Stride Rite ® and Keds ® brands. The PLG acquisition nearly doubled the size of the Company. Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Cushe ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Soft Style ® , Sperry Top-Sider ® , Stride Rite ® and Wolverine ® . The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel; Sperry Top-Sider ® apparel; and Stride Rite ® apparel. Cat ® is a registered trademark of Caterpillar, Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s brands are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company's portfolio of brands is organized into the following three operating segments, which the Company has determined are reportable operating segments: +• +Lifestyle Group , consisting of Sperry Top-Sider ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel, and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Chaco ® footwear, and Cushe ® footwear; and +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear, and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue of the operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; royalty income from the licensing of the Company’s trademarks; revenue from distribution arrangements with third-party distributors; and revenue from the Company’s mono-branded consumer-direct businesses, including revenue from eCommerce websites. +The Company also reports "Other" and "Corporate" categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations, and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses including acquisition-related transaction and integration costs and restructuring costs. The Company’s operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. +The Company’s Global Operations Group is responsible for manufacturing, sourcing, distribution, logistics and customer support. The Company directly sells its products in the United States ("U.S."), Canada and certain countries in Europe to a wide range of customers, including department stores, national chains, catalog retailers, specialty retailers, mass merchants and internet retailers, and to governments and municipalities. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments and other operating categories and financial information by geographic area is found in Note 15 to the consolidated financial statements of the Company which are included in Item 8 of this Annual Report on Form 10-K. +4 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Lifestyle Group +Sperry Top-Sider ® : Sperry Top-Sider ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry Top-Sider ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry Top-Sider ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry Top-Sider ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring A SV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry Top-Sider ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Stride Rite ® : With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. Stride Rite ® is focused on delivering the best possible footwear across a range of categories for children under nine years of age. All Stride Rite ® products benefit from nearly a century of in-depth knowledge and understanding of how children walk and grow. Every new material and component is rigorously tested to ensure safety, proper fit and durability for children. Stride Rite ® sells product under its own namesake brand, as well as children's footwear offerings from Saucony ® , Sperry Top-Sider ® , Keds ® , Merrell ® and select other footwear brands, through a network of Company-owned mall-based specialty retail stores and a consumer-direct website. Stride Rite ® also distributes children's footwear through better department stores, independent retailers, sporting goods chains, mall specialty retailers, internet retailers and national family footwear stores. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Keds ® : Keds ® is an authentic casual lifestyle brand with a foundation in canvas footwear. This iconic American brand was founded in 1916 with the introduction of the Champion ® sneaker. The simple and chic design ignited a style revolution, from fashion icons to the girl next door. Today, Keds ® is fueled by a passion for imagination, inspiring a new generation of girls to stay authentic, optimistic and brave. The brand targets teen girl consumers through an extensive collection of Champion ® originals, as well as a wide assortment of fashion sneakers and slip-ons. The brand’s product architecture consists of both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions. +Soft Style ® : Soft Style ® is a women’s dress and casual footwear brand, with a combination of all-day comfort, trend-right details, feminine style and great value. +2. +Performance Group +Merrell ® : Merrell ® footwear is designed to inspire and encourage participation in the outdoors. Known for quality, durability and comfort, Merrell ® uses a variety of proprietary designs and technologies to create footwear with distinctive styling, performance and comfort features for use on the trail or in town. Merrell ® footwear products offer a wide range of styles, from technical hiking and trail-inspired footwear to versatile lifestyle products for more casual outdoor adventures for men and women. Merrell ® footwear products are sold primarily through outdoor specialty retailers, sporting goods chains, department stores, internet retailers and catalog retailers. Merrell ® apparel extends the Merrell ® commitment to an active outdoor lifestyle with a versatile line of apparel built for the summit or the street. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories for men and women, including packs, bags and luggage. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite +5 +Table of Contents +Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, natural motion, race, trail and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers. +Cushe ® : Cushe ® is a lifestyle brand focusing on relaxed, design-led footwear with a Cushe ® Mellow comfort story for active men and women. The Cushe ® footwear business targets younger adult consumers with products ranging from sport casual to hanging sandals sold through better-grade retailers. +3. +Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) outdoor sport; and (iii) rugged casual. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged casual and outdoor sport product lines incorporate DuraShocks ® , Wolverine iCS ® and other technologies and comfort features into products designed for casual and outdoor sport use. The brand's rugged casual line targets consumers that have active lifestyles. The outdoor sport line is designed to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar, Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar, Inc. +Bates ® Uniform Footwear: The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to the U.S. Department of Defense and the military branches of several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Sebago ® : Established i n 1946, Sebago ® shares its New England heritage and tradition with those who inspire to make the journey with them. Sebago ® creates timeless, handcrafted dress and casual products from quality materials, all with a sense of purpose and style. The original, handsewn Classic penny loafer and Docksides ® boat shoe remain unchanged since first crafted by Sebago ® decades ago. While embracing its heritage, Sebago ® has a true passion for taking the best of the past and evolving with today's consumer in mind. Along with authentic classics, the brand also offers new, modern footwear silhouettes and apparel and accessories. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including +6 +Table of Contents +steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company also operates a multi-brand consumer-direct business and a performance leather business. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company uses a network of independent Shoemobile ® distribution outlets to distribute certain of the Company’s work and occupational footwear brands at industrial facilities. +• +The Company solicits all branches of the U.S. military and submits bids for contracts to supply specific footwear products. +In addition to its wholesale activities, the Company also operates a mono- and multi-brand consumer-direct distribution channel, as described above. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2014 . +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue (and taking into consideration the 16 weeks or 17 weeks included in the Company’s fiscal fourth quarter versus the 12 weeks included in each +7 +Table of Contents +of the first three fiscal quarters). The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal free cash flow and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company has formed joint ventures to market and distribute footwear and apparel in Colombia. The Company believes that joint ventures will provide it with a meaningful ownership stake and near-term brand impact in this fast-growing market than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel manufactured or sourced under the Company’s brand names. The Company’s licensees directly control the balance. A substantial majority of the units sourced or manufactured by the Company are procured from third parties, with the remainder of the manufacturing produced at a Company-owned facility. The Company sources a majority of its footwear from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. Footwear manufactured by the Company is produced at a Company-operated facility located in Michigan. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 40 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Cushe ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Sebago ® , Q Form ® , Sperry Top-Sider ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks +8 +Table of Contents +pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through June 30, 2016. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 14, 2015, the Company had an order backlog of approximately $1,170 million compared to an order backlog of approximately $1,005 million at February 8, 2014. The majority of the backlog relates to orders for products expected to ship in fiscal 2015 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. The Company has a significant number of major competitors for its brands of footwear and apparel. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +Compliance with domestic and foreign and domestic federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of January 3, 2015 , the Company had approximately 6,600 domestic and foreign production, office and sales employees. Approximately 56 employees were covered by a single union contract that expires on December 31, 2017. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee +9 +Table of Contents +Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2014/0000110471-15-000012/item13.txt b/raw/filings/0000110471/2014/0000110471-15-000012/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..d44a695b6bf163d9cbec316388c70cdfa2311eb1 --- /dev/null +++ b/raw/filings/0000110471/2014/0000110471-15-000012/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information contained under the caption “Related Party Matters” under the subheadings “Certain Relationships and Related Transactions” and “Related Person Transactions Policy” contained in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. The information contained under the caption “Corporate Governance” under the subheading “Director Independence” contained in the Definitive Proxy Statement of the Company with respect to the Annual Meeting of Stockholders to be held on April 22, 2015 , is incorporated herein by reference. \ No newline at end of file diff --git a/raw/filings/0000110471/2014/0000110471-15-000012/item9a.txt b/raw/filings/0000110471/2014/0000110471-15-000012/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..6c8853637ff6b382a71bb88fd80bb94232a643df --- /dev/null +++ b/raw/filings/0000110471/2014/0000110471-15-000012/item9a.txt @@ -0,0 +1,9 @@ +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of January 3, 2015 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 3, 2015. +The effectiveness of the Company’s internal control over financial reporting as of January 3, 2015 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the seventeen-week period ended January 3, 2015 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2014/0000110471-15-000012/rp_note.txt b/raw/filings/0000110471/2014/0000110471-15-000012/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000110471/2014/0000110471-15-000012/rpt_disclosure.txt b/raw/filings/0000110471/2014/0000110471-15-000012/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..252e7573cc84cd8f1a4724c2ff7cc5a63b515d7f --- /dev/null +++ b/raw/filings/0000110471/2014/0000110471-15-000012/rpt_disclosure.txt @@ -0,0 +1,41 @@ +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. They require the +Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance +Committee must review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +1. +Any employment compensation paid to an executive officer of the Company if the Compensation Committee approved or recommended to the Board of Directors for approval such compensation. +2. +Any compensation paid to a director for service as a director of the Company. +3. +Any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another +entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%. +4. +Any transaction in which the Related Person's interest arises solely from the ownership of the Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and proxy statement, an executive officer, director or, to the extent information regarding such nominee is being +presented in a proxy or information statement relating to the election of that nominee as a director, nominee for election as a director; +(b) +beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +immediate family member * of any of the foregoing. +* Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, +siblings, mothers-and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person's home (other than a tenant or employee). +The +Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar +circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested +Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. +Wolverine Worldwide Notice of 2016 Annual Meeting of Stockholders and Proxy Statement +| Page +85 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0000110471/2015/0000110471-16-000050/filing.txt b/raw/filings/0000110471/2015/0000110471-16-000050/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc1d9e8cae16dd72668eaa4c00eb12ce253bbb1c --- /dev/null +++ b/raw/filings/0000110471/2015/0000110471-16-000050/filing.txt @@ -0,0 +1,6542 @@ +10-K +1 +wolverineform10-k2015.htm +FORM 10-K +10-K +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended January 2, 2016 +or +¨ +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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware +38-1185150 +State or other jurisdiction of +incorporation or organization +(I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E., +Rockford, Michigan +49351 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Securities Exchange Act: +Title of each class +Name of each exchange on which registered +Common Stock, $1 Par Value +New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 þ No ¨ +Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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. þ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer þ Accelerated filer ¨ +Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 19, 2015 , the last business day of the registrant’s most recently completed second fiscal quarter: $ 2,908,187,597 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 19, 2016 : 99,894,872 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting to be held April 21, 2016 are incorporated by reference into Part III of this report. +Table of Contents +Table of Contents +PART I +Item 1. +Business +4 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +20 +Item 2. +Properties +20 +Item 3. +Legal Proceedings +21 +Item 4. +Mine Safety Disclosures +21 +Supplemental Item. +Executive Officers of the Registrant +21 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6. +Selected Financial Data +24 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +24 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +33 +Item 8. +Financial Statements and Supplementary Data +35 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +79 +Item 9A. +Controls and Procedures +79 +Item 9B. +Other Information +79 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +79 +Item 11. +Executive Compensation +79 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +79 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +79 +Item 14. +Principal Accounting Fees and Services +80 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +81 +SIGNATURES +82 +Appendix A: Financial Statement Schedule +A-1 +Exhibit Index +E-1 +2 +Table of Contents +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• +changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• +the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• +the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• +the inability to effectively manage inventory levels; +• +increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• +currency fluctuations; +• +currency restrictions; +• +capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; +• +the cost and availability of raw materials, inventories, services and labor for owned and contract manufacturers; +• +labor disruptions; +• +changes in relationships with, including the loss of, significant wholesale customers; +• +the failure of the U.S. Department of Defense to exercise future purchase options or award new contracts, or the cancellation or modification of existing contracts by the Department of Defense or other military purchasers; +• +risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; +• +risks related to the expanding into new markets and complementary product categories as well as consumer-direct operations; +• +the impact of seasonality and unpredictable weather conditions; +• +changes in general economic conditions and/or the credit markets on the Company’s distributors, suppliers and customers; +• +increase in the Company’s effective tax rates; +• +failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• +the risks of doing business in developing countries, and politically or economically volatile areas; +• +the ability to secure and protect owned intellectual property or use licensed intellectual property; +• +the impact of regulation, regulatory and legal proceedings and legal compliance risks; +• +the potential breach of the Company’s databases, or those of its vendors, which contain certain personal information or payment card data; +• +problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; +• +strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, and implementing new initiatives and ventures; +• +the risk of impairment to goodwill and other acquired intangibles; +• +the success of the Company’s consumer-direct realignment initiatives; and +• +changes in future pension funding requirements and pension expenses. +These uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +3 +Table of Contents +PART I +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Soft Style ® , Sperry ® , Stride Rite ® and Wolverine ® . The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel; Sperry ® apparel; and Stride Rite ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s brands are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +Through the end of fiscal 2015, the Company's portfolio of brands was organized into the following three operating segments, which the Company determined were reportable operating segments: +• +Lifestyle Group , consisting of Sperry ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel, and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel and Chaco ® footwear; and +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear, and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue of the operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; royalty income from the licensing of the Company’s trademarks; revenue from distribution arrangements with third-party distributors; and revenue from the Company’s mono-branded consumer-direct businesses, including revenue from eCommerce websites. +The Company also reports "Other" and "Corporate" categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations, and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses including acquisition-related integration costs and restructuring costs. The Company’s operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. +The Company’s Global Operations Group is responsible for manufacturing, sourcing, distribution, logistics and customer support. The Company directly sells its products in the United States ("U.S."), Canada and certain countries in Europe to a wide range of customers, including department stores, national chains, catalog retailers, specialty retailers, mass merchants and internet retailers, and to governments and municipalities. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments and other operating categories and financial information by geographic area is found in Note 15 to the consolidated financial statements of the Company which are included in Item 8 of this Annual Report on Form 10-K. +4 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Lifestyle Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring A SV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Stride Rite ® : With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. Stride Rite ® is focused on delivering the best possible footwear across a range of categories for children under nine years of age. All Stride Rite ® products benefit from nearly a century of in-depth knowledge and understanding of how children walk and grow. Every new material and component is rigorously tested to ensure safety, proper fit and durability for children. Stride Rite ® sells product under its own namesake brand, as well as children's footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and select other footwear brands, through a network of Company-owned mall-based specialty retail stores and a consumer-direct website. Stride Rite ® also distributes children's footwear through better department stores, independent retailers, sporting goods chains, mall specialty retailers, internet retailers and national family footwear stores. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Keds ® : Keds ® is an authentic casual lifestyle brand with a foundation in canvas footwear. This iconic American brand was founded in 1916 with the introduction of the Champion ® sneaker. The simple and chic design ignited a style revolution, from fashion icons to the girl next door. Today, Keds ® is fueled by a passion for imagination, inspiring a new generation of girls to stay authentic, optimistic and brave. The brand targets teen girl consumers through an extensive collection of Champion ® originals, as well as a wide assortment of fashion sneakers and slip-ons. The brand’s product architecture consists of both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions. +Soft Style ® : Soft Style ® is a women’s dress and casual footwear brand, with a combination of all-day comfort, trend-right details, feminine style and great value. +2. +Performance Group +Merrell ® : Merrell ® footwear is designed to inspire and encourage participation in the outdoors. Known for quality, durability and comfort, Merrell ® uses a variety of proprietary designs and technologies to create footwear with distinctive styling, performance and comfort features for use on the trail or in town. Merrell ® footwear products offer a wide range of styles, from technical hiking and trail-inspired footwear to versatile lifestyle products for more casual outdoor adventures for men and women. Merrell ® footwear products are sold primarily through outdoor specialty retailers, sporting goods chains, department stores, internet retailers, catalog retailers, as well as Merrell ® stores and an eCommerce site. Merrell ® apparel extends the Merrell ® commitment to an active outdoor lifestyle with a versatile line of apparel built for the summit or the street. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories for men and women, including packs, bags and luggage. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing +5 +Table of Contents +to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, natural motion, race, trail and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers, as well as the Chaco ® eCommerce site. Chaco ® also features MyChacos custom designs for sandals. +3. +Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) rugged outdoor for hunting; and (iii) lifestyle and heritage. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged outdoor product lines incorporate DuraShocks ® , Wolverine iCS ® and other technologies and comfort features into products designed outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers that have active lifestyles. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to the U.S. Department of Defense and the military branches of several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Sebago ® : Established i n 1946, Sebago ® shares its New England heritage and tradition with those who inspire to make the journey with them. Sebago ® creates timeless, handcrafted dress and casual products from quality materials, all with a sense of purpose and style. The original, handsewn Classic penny loafer and Docksides ® boat shoe remain unchanged since first crafted by Sebago ® decades ago. While embracing its heritage, Sebago ® has a true passion for taking the best of the past and evolving with today's consumer in mind. Along with authentic classics, the brand also offers new, modern footwear silhouettes and apparel and accessories. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive +6 +Table of Contents +footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company also operates a multi-brand consumer-direct business and a performance leather business. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +On February 4, 2016, the Company announced certain organizational changes impacting its operating segments structure. The Company is evaluating the impacts of these changes to its reportable operating segments which will be reflected beginning with the first quarter of fiscal 2016. The operating segment structure described above is consistent with the reporting structure in effect at the end of fiscal 2015 for consistency with financial reporting for that year. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company uses a network of independent Shoemobile ® distribution outlets to distribute certain of the Company’s work and occupational footwear brands at industrial facilities. +• +The Company solicits all branches of the U.S. military and submits bids for contracts to supply specific footwear products. +In addition to its wholesale activities, the Company also operates a mono- and multi-brand consumer-direct distribution channel, as described above. +7 +Table of Contents +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2015 . +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue (and taking into consideration the 16 weeks or 17 weeks included in the Company’s fiscal fourth quarter versus the 12 weeks included in each of the first three fiscal quarters). The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal free cash flow and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Asia, as well as in Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel manufactured or sourced under the Company’s brand names. The Company’s licensees directly control the balance. A substantial majority of the units sourced or manufactured by the Company are procured from third parties, with the remainder of the manufacturing produced at a Company-owned facility. The Company sources a majority of its footwear from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. Footwear manufactured by the Company is produced at a Company-operated facility located in Michigan. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 40 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +8 +Table of Contents +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Sebago ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through December 31, 2020. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 20, 2016, the Company had an order backlog of approximately $1,032 million compared to an order backlog of approximately $1,182 million at February 21, 2015. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2016 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. The February 21, 2015 backlog contained approximately $30 million in orders that were placed earlier than normal to avoid potential shipping delays as a result of the West Coast port slow down and threatened strike, and approximately $15 million of orders related primarily to the Cushe business exit. Longer production lead times also influenced order timing in 2015. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. The Company has a significant number of major competitors for its brands of footwear and apparel. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +Compliance with foreign and domestic federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local +9 +Table of Contents +regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of January 2, 2016 , the Company had approximately 6,550 domestic and foreign production, office and sales employees. Approximately 45 employees were covered by a single union contract that expires on December 31, 2017. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. +Risk Factors +Risks Related to the Company’s Business +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global economic conditions. Disposable income and consumer confidence may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, inflation, high levels of unemployment or consumer debt, high tax rates or other economic factors. A decline in disposable income and consumer confidence could adversely affect demand for the Company’s products. Changes in and the growth or decline of global footwear, apparel or consumer-direct markets could negatively affect consumer spending. +The Company operates in competitive industries and markets. +The Company competes with a large number of manufacturers, marketers, wholesalers, and retailers of footwear and apparel, and consumer-direct footwear and apparel companies. Some of these competitors are larger and have greater resources than the Company. Important elements of such competition are product performance and quality, including technological improvements, product identity, pricing and the ability to adapt to style changes. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences will affect its future sales. If the Company is unable to respond effectively to competitive pressures and changes in consumer preferences and spending, its results of operations and financial position may be adversely affected. +Many of the Company’s competitors have larger customer and consumer bases, are able to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own more recognized brands; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s results of operations and financial position could be adversely affected if it fails to compete successfully in the footwear, apparel and retail markets. +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in +10 +Table of Contents +consumer preferences, increasing brand awareness, gaining sourcing efficiencies, and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated, associate its brands with styles that are no longer popular and decrease demand for its products. Such failures could result in reduced sales, excess inventory, trade name impairments, lower gross margin and adverse impacts on the Company’s operating results. +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to manage its inventories effectively and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers, and, consequently, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and could adversely affect its sales and profitability. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency fluctuations affect the Company’s revenue and profitability. Changes in currency exchange rates may impact the Company’s financial results positively or negatively in one period and not another, which may make it difficult to compare its operating results from different periods. Currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by making their costs of raw materials or other production costs more expensive and more difficult to finance, thereby raising prices for the Company, its distributors or its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign exchange risk. For a more detailed discussion of the risks related to foreign currency fluctuation, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, our foreign subsidiaries purchase products in U.S. dollars in which the cost of those products will vary depending on the foreign currency rates and will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which will impact the price to foreign consumers and in addition, will impact the amount of royalty paid to the Company in U.S. dollars. As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits are reduced when translated into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs due to the foreign currency rates experienced. Although the Company typically works to mitigate this negative foreign currency transaction impact through price increases and further actions to reduce costs, the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have a material adverse effect on the Company’s business and results of operations. +Significant capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the industry, the Company does not have long-term contracts with its third-party suppliers. There can be no assurance that the Company will not experience difficulties with such suppliers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party suppliers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly +11 +Table of Contents +interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products and its operating results are dependent on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, insurance and health care. The cost of services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases raw pigskins for its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, such as the recent labor dispute at west coast U.S. ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, lockouts, strikes or other disruptions. Any such disruption may have a material adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or cancelled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or failure of customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success is directly dependent on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its customers. Sales to the Company’s customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the customers. Failure to fill customers’ orders in a timely manner could harm the Company’s relationships with its customers. Furthermore, if any of the Company’s major customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to customers and extends credit based on an evaluation of each customer’s financial condition. The financial difficulties of a customer could cause the Company to stop doing business with that customer or reduce its business with that customer. The Company’s inability to collect from its customers or a cessation or reduction of sales to certain customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer customers, customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry its products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company has been awarded a number of U.S. Department of Defense contracts that include future purchase options for Bates ® footwear. The U.S. Department of Defense is not obligated to exercise these future purchase options for Bates ® footwear or to solicit future footwear awards at levels consistent with historical awards or in a manner in which the Company, as a large business contractor under Small Business Administration rules, is eligible to bid. Failure by the U.S. Department of Defense to exercise purchase options or the Company’s failure to secure future U.S. Department of Defense contracts could have an adverse effect on the Company’s results of operations and financial position. +12 +Table of Contents +The Company’s consumer-direct operations have required, and will continue to require, a substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s consumer-direct operations, including its brick and mortar locations as well as its eCommerce and mobile channels, have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company has also made substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and employee-related costs. The success of our consumer-direct operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic, and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as damage its reputation and brands, and could materially affect the Company’s results of operations and financial position. +Expanding the Company’s brands into new markets and expanding its consumer-direct operations may be difficult and costly, and unsuccessful efforts to do so may adversely affect the Company’s brands and business. +As part of the Company’s growth strategy, it seeks to enhance the positioning of its brands, to extend its brands into complementary product categories, to expand geographically and to expand its consumer-direct operations. There can be no assurance that the Company will be able to successfully implement any or all of these growth strategies, and unsuccessful efforts to do so could have an adverse effect on its results of operations and financial position. +Part of the future growth of the Company’s consumer-direct operations is significantly dependent on the Company’s ability to operate stores in desirable locations at reasonable lease costs and to successfully develop its eCommerce and mobile platforms. The Company cannot be sure as to when or whether desirable brick and mortar locations will become available at reasonable costs or whether its eCommerce and mobile platforms will be successful. Further, if the Company is unable to renew or replace its existing store leases or enter into leases for new stores at attractive locations on favorable terms, or if the Company violates any of the terms of its current leases, its growth and profitability could be harmed. +Weather conditions affect the Company’s business. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for the season, such as an unusually cold and rainy summer, or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate merchandise may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are highly dependent on future weather conditions and its ability to react to changes in weather conditions. Weather conditions can also impact the Company’s ability to distribute its products on a timely basis. +Changes in general economic conditions and/or the credit markets affecting our distributors, suppliers and retail customers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could adversely impact the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact our third-party distributors’, suppliers’ and retailers’ ability meet their obligations and provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet our consumers’ demand results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products, or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Unfavorable findings resulting from a government audit could subject the Company to a variety of penalties and sanctions, and could negatively impact its future revenues. +The U.S. government has the right to audit the Company’s performance under its government contracts. If a government audit discovers improper or illegal activities, the Company could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with U.S. government agencies. The Company could also suffer serious harm to its reputation if the U.S. government alleges that the Company acted in an improper or illegal manner, whether or not any such allegations have merit. If, as the result +13 +Table of Contents +of an audit or for any other reason, the Company is suspended or barred from contracting with the U.S. government generally, or any specific agency thereof, if the Company’s reputation or relationship with government agencies is impaired, or if the U.S. government otherwise ceases doing business with the Company or significantly decreases the amount of business it does with the Company, the Company’s revenue and profitability would decrease. The Company is also subject to customs and other audits in various jurisdictions where it operates. Negative audit findings in foreign jurisdictions similarly could have an adverse effect on the Company’s results of operations and financial position. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have a material adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company does not provide for U.S. taxes on earnings it considers to be permanently reinvested in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; decreases in the amount of earnings in countries with low statutory tax rates; or if the Company repatriates foreign earnings (or if U.S. tax laws change to tax foreign earnings) for which no provision for U.S. taxes has previously been made. An increase in the Company’s effective tax rate could have a material adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes, and establishes reserves for potential adjustments that may result from these examinations. There can be no assurance that the final determination of any of these examinations will not have an adverse effect on the Company’s results of operations and financial position. +Failure of the Company’s third-party licensees and distributors to meet sales goals or to make timely payments on amounts owed to the Company could adversely affect the Company’s financial performance. +In many international markets, independent third-party licensees or distributors sell the Company’s products. Failure by the Company’s licensees or distributors to meet planned annual sales goals or to make timely payments on amounts owed to the Company could have an adverse effect on the Company’s business, results of operations and financial position. If a change in licensee or distributor becomes necessary, it may be difficult and costly to locate an acceptable substitute distributor or licensee and the Company may experience increased costs, as well as substantial disruption and a resulting loss of sales and brand equity in the market where such licensee or distributor operates. +The Company’s reputation and competitive position are dependent on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business to comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could receive negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful, as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 200 countries and territories, and the Company sources a substantial majority of its products offshore. Concerns regarding acts of terrorism or regional and international conflicts have created significant global economic and political uncertainties that may have material and adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports, and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. The Company is subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability, nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, +14 +Table of Contents +commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Global capital markets could enter a period of severe disruption and instability, which could have a material adverse effect on debt and equity markets in the United States, which could have a materially negative impact on the Company’s business, financial condition and results of operations. +The U.S. and global capital markets have experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may recur for a prolonged period of time or materially worsen in the future. In addition, signs of deteriorating sovereign debt conditions in Europe and concerns of economic slowdown in China create uncertainty that could lead to further disruptions and instability. The Company may in the future have difficulty accessing capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels, European sovereign debt, Chinese economic slowdown or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations. +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive is dependent upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property, or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then it may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the licensor of any of these license agreements could have a material adverse effect on the Company’s business, results of operations and financial position. +The Company’s inability to attract and retain executive managers and other key employees, or the loss of one or more executive managers or other key employees, could adversely affect the Company’s business. +The Company depends on its executive management and other key employees. In the footwear, apparel and consumer-direct industries, competition for key executive talent is intense, and the Company’s failure to identify, attract or retain executive managers or other key employees could adversely affect its business. The Company must offer and maintain competitive compensation packages to effectively recruit and retain such individuals. Further, the loss of one or more executive managers or other key employees, or the Company’s failure to successfully implement succession planning, could adversely affect the Company, its results of operations or financial position. +Regulatory and other changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations, and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +15 +Table of Contents +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could substantially harm the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company strives to comply with all applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If so, the Company may suffer damage to its reputation and be subject to proceedings or actions against it by governmental entities or others. Any such proceeding or action could hurt the Company’s reputation, force it to spend significant amounts to defend its practices, distract its management, increase its costs of doing business, and result in monetary liability. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to ensure it remains in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease, its opportunities for growth may be curtailed by its compliance capabilities or reputational harm and its potential liability for security breaches may increase. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may distract the Company’s management team and require it to undertake costly and time consuming remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could result in loss of business. Failure to comply with the Standard or Card Rules could result in loosing certification under the PCI standards and an inability to process payments. +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be materially adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company has become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s +16 +Table of Contents +business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible material adverse impact on its financial condition and results of operations. While the Company maintains insurance coverage that may, subject to policy terms and conditions cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses and would not remedy damage to its reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and payment card industry security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistic and distribution systems include computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. Therefore, its operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity is dependent on the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be materially adversely affected. +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions, and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company cannot provide assurance that it will be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future could have an adverse effect on the Company’s results of operations and financial position. The Company may not consummate a potential acquisition for a variety of reasons, but it may nonetheless incur material costs in the preliminary stages of such an acquisition that it cannot recover. +17 +Table of Contents +Maintenance and growth of the Company’s business depends upon the availability of adequate capital. +The maintenance and growth of the Company’s business depends on the availability of adequate capital, which in turn depends in large part on cash flow generated by the Company’s business and the availability of equity and debt financing. The Company cannot provide assurance that its operations will generate positive cash flow or that it will be able to obtain equity or debt financing on acceptable terms, or at all. Further, the Company cannot provide assurance that it will be able to finance any expansion plans. +An impairment of goodwill or other acquired intangibles could have an adverse material impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized, but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could materially affect the Company’s results of operations. +There is no assurance that the Company will be able to successfully implement its realignment plan. +The Company intends to close certain retail stores, consolidate certain consumer-direct support functions and implement certain other organizational changes (the “2014 Plan”). There can be no assurance that the Company will successfully implement the 2014 Plan within the estimated range of charges, within the estimated time frame, or that the Company will realize some or all of the estimated profitability improvements or other benefits from the 2014 Plan. There is also no assurance that the Company will be able to re-invest any future cost savings generated from the 2014 Plan into other initiatives or that any such investment will improve the Company’s operations. +Changes in government regulation may increase the Company’s costs of compliance and failure to comply with government regulations or other standards may adversely affect its brands and business. +The Company’s business is affected by changes in government and regulatory policies in the U.S. and in foreign jurisdictions. New requirements relating to product safety and testing and new environmental requirements, as well as changes in tax laws, duties, tariffs and quotas, could have a negative impact on the Company’s ability to produce and market footwear at competitive prices. Failure to comply with such regulations, as well as comply with ethical, social, product, labor and environmental standards, could also jeopardize the Company’s reputation and potentially lead to various adverse consumer actions, including boycotts. Any negative publicity about these types of concerns may reduce demand for the Company’s products. Damage to the Company’s reputation or loss of consumer confidence for any of these or other reasons could adversely affect the Company’s results of operations, as well as require additional resources to rebuild its reputation and brand value. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may in the ordinary course of business be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, financial position and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +18 +Table of Contents +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential hostile acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions that may be beneficial to the Company’s stockholders. +There are risks, including stock market volatility, inherent in owning the Company’s common stock. +The market price and volume of the Company’s common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on the Company’s financial position and results of operations, or a change in opinion in the market regarding the Company’s business prospects or other factors, many of which may be outside the Company’s immediate control. Changes in the amounts and frequency of share repurchases or dividends also could adversely affect the value of the Company’s common stock. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• +The wholesale business, sales of footwear are dependent on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• +Wholesale customers set the delivery schedule for shipments of the Company’s products, which could cause shifts of sales between quarters. +• +Estimated annual tax rate is based on projections of our domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• +Earnings are also sensitive to a number of factors that are beyond the Company’s control, including manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates are based upon their own opinions and are often different from the Company’s estimates or expectations. If the Company’s operating results are below the estimates or expectations of public market analysts and investors, the Company’s stock price could decline. +The Company’s indebtedness could adversely affect the Company. +The Company’s current indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control, and there can be no assurance that the Company will satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +19 +Table of Contents +The Company’s results of operations, financial position, and cash flows, and its ability to conduct business in international markets may be affected by legal, regulatory, political, and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political, and economic risks. These include: +• +the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• +compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• +unexpected changes in regulatory requirements; and +• +new tariffs or other barriers in some international markets. +The Company is also subject to general political and economic risks in connection with our international operations, including: +• +political instability and terrorist attacks; +• +differences in business culture; +• +different laws governing relationships with employees and business partners; +• +changes in diplomatic and trade relationships; and +• +general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States or foreign countries upon the import or export of our products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition, or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have a material adverse effect on the Company’s business in the future or may require us to exit a particular market or significantly modify our current business practices. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company cannot be assured that the internal control policies and procedures currently in place will always protect it from reckless or criminal acts committed by our employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in a material adverse effect on the results of operations or financial condition. +Item 1B. +Unresolved Staff Comments +None. +Item 2. +Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 225,000 square feet in Rockford, Michigan, as well as a leased facility of approximately 147,000 square feet in Lexington, Massachusetts. The Company’s manufacturing operations are conducted at owned facilities in Michigan. The Company operates its distribution operations primarily through an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center in Howard City, Michigan, of approximately 460,000 square feet; a leased distribution center in Cedar Springs, Michigan, of approximately 360,000 square feet; an owned distribution center in Rockford, Michigan, of approximately 305,000 square feet; a leased distribution center in Ontario, Canada, of approximately 342,000 square feet; and a leased distribution facility of approximately 200,000 square feet in Brookville, Ohio. +The Company also leases and owns various other offices and distribution centers throughout the U.S. to meet its operational requirements. In addition, the Company operates 390 retail stores through leases with various third-party landlords in the U.S. and Canada collectively occupying approximately 817,000 square feet. +20 +Table of Contents +The Company conducts its international operations in Canada, the United Kingdom, China, Hong Kong and continental Europe through leased distribution centers, offices and/or showrooms. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. +Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. The Company has considered facts related to legal and regulatory matters and advice of counsel handling these matters, and does not believe the ultimate resolution of such proceedings will have a material adverse effect on the Company’s financial position, results of operations, or cash flows. +Item 4. +Mine Safety Disclosures +Not applicable. +Supplemental Item. Executive Officers of the Registrant +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of February 19, 2016 . The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, they serve at the pleasure of management. +Name +Age +Positions held with the Company +Ted S. Gedra +60 +President, Wolverine Heritage Group +Brendan M. Gibbons +40 +Vice President, General Counsel and Secretary +Melissa A. Howell +49 +Senior Vice President, Global Human Resources +Michael Jeppesen +56 +President, Global Operations Group +Blake W. Krueger +62 +Chairman of the Board, Chief Executive Officer and President +Michael D. Stornant +49 +Senior Vice President, Chief Financial Officer and Treasurer +Richard J. Woodworth +58 +President, Wolverine Boston Group +James D. Zwiers +48 +President, Wolverine Outdoor & Lifestyle Group +Ted S. Gedra has served the Company as President, Wolverine Heritage Group since February 2016. From 2011 to February 2016, he served as President, Heritage Group, which was realigned into the Wolverine Heritage Group. From 2006 to 2010, he served as President of the Wolverine Footwear Group. +Brendan M. Gibbons has served the Company as Vice President, General Counsel and Secretary since April 2014. From 2009 to October 2013, he served as Senior Vice President of Legal and Corporate Affairs, General Counsel, and Secretary for Carter’s Inc., a global branded marketer of apparel for babies and young children. +Melissa A. Howell has served the Company as Senior Vice President, Global Human Resources since October 2014. From February 2013 to May 2014, she served as Senior Vice President, Global Human Resources for General Motors, one of the world’s largest automobile manufacturers. She served General Motors as Executive Director, North America Human Resources from 2011 to 2013 and as Human Resources Director, Global Sales and Marketing from 2009 to 2011. +Michael Jeppesen has served the Company as President, Global Operations Group since January 2012. From 2005 to 2011, he was Senior Vice President, Design and Sourcing, for Collective Brands, Inc., a wholesaler and retailer of footwear and related accessories. +Blake W. Krueger has served the Company as Chairman since January 2010 and as Chief Executive Officer and President since April 2007. +Michael D. Stornant has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. From 2011 until January 2013, he served as Vice President and General Manager of Bates footwear. From 2009 until 2011, he served as Vice President of Corporate Planning and Analysis. +21 +Table of Contents +Richard J. Woodworth has served the Company as President, Wolverine Boston Group since February 2016. From January 2016 to February 2016, he served as President, Lifestyle Group, which was realigned into the Wolverine Boston Group. From 2006 to 2015, he served as President, Saucony. +James D. Zwiers has served the Company as President, Wolverine Outdoor & Lifestyle Group since February 2016. From June 2014 through February 2016, he served as Senior Vice President and President, International Group. From January 2013 to June 2014, he served as Senior Vice President and President, Performance Group. From March 2009 until January 2013, he served as Senior Vice President and President, Outdoor Group, which was realigned into the Performance Group. +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” On July 11, 2013, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock dividend that was paid on November 1, 2013 to stockholders of record on October 1, 2013. All share and per share data within this Form 10-K have been adjusted for all periods presented to reflect the stock split. The following table shows the high and low stock prices on the New York Stock Exchange and dividends declared by quarter for fiscal years 2015 and 2014 . The number of stockholders of record on February 19, 2016 , was 1,718. +Fiscal 2015 +Fiscal 2014 +Stock price +High +Low +High +Low +First quarter +$ +32.57 +$ +26.86 +$ +34.10 +$ +25.13 +Second quarter +35.20 +28.54 +30.00 +25.06 +Third quarter +29.94 +24.98 +27.47 +24.00 +Fourth quarter +27.24 +16.70 +30.75 +24.21 +Fiscal Year +Cash dividends declared per share +2015 +2014 +First quarter +$ +0.06 +$ +0.06 +Second quarter +0.06 +0.06 +Third quarter +0.06 +0.06 +Fourth quarter +0.06 +0.06 +A quarterly dividend of $0.06 per share was declared on February 10, 2016. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2016 . +The Company’s Credit Agreement and senior notes indenture impose certain restrictions on the Company’s ability to pay cash dividends. The Company may not pay a dividend if the Company is in default under the Credit Agreement or the indenture, or if payment of the dividend would cause a default under the Credit Agreement or the indenture, including the Company’s covenant to meet prescribed leverage ratios. +See Item 12: "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for information with respect to the Company’s equity compensation plans. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +22 +Table of Contents +Five-Year Cumulative Total Return Summary +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2015 . +Issuer Purchases of Equity Securities +Period +Total Number of Shares Purchased +Average Price Paid per Share +Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs +Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (September 13, 2015 to October 10, 2015) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +187,408,187 +Employee Transactions (2) +2,243 +$ +21.55 +Period 11 (October 11, 2015 to November 7, 2015) +Common Stock Repurchase Program (1) +4,357,196 +$ +18.36 +4,357,196 +$ +107,408,198 +Employee Transactions (2) +— +$ +— +Period 12 (November 8, 2015 to December 5, 2015) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +107,408,198 +Employee Transactions (2) +9,729 +$ +18.27 +Period 13 (December 6, 2015 to January 2, 2016) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +107,408,198 +Employee Transactions (2) +4,942 +$ +17.40 +Total for Fourth Quarter ended January 2, 2016 +Common Stock Repurchase Program (1) +4,357,196 +$ +18.36 +4,357,196 +$ +107,408,198 +Employee Transactions (2) +16,914 +$ +18.45 +(1) +The Company’s Board of Directors approved a common stock repurchase program on February 12, 2014. This program authorizes the repurchase of up to $200 million of common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement and senior notes indenture. +(2) +Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares. The Company’s employee stock compensation plans +23 +Table of Contents +provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +Item 6. +Selected Financial Data +Five-Year Operating and Financial Summary (1) +Fiscal Year +(In millions, except per share data) +2015 +2014 +2013 +2012 (4) +2011 +Summary of Operations +Revenue +$ +2,691.6 +$ +2,761.1 +$ +2,691.1 +$ +1,640.8 +$ +1,409.1 +Net earnings attributable to Wolverine World Wide, Inc. +122.8 +133.1 +100.4 +80.7 +123.3 +Per share of common stock: +Basic net earnings (2)(3) +$ +1.22 +$ +1.33 +$ +1.01 +$ +0.84 +$ +1.27 +Diluted net earnings (2)(3) +1.20 +1.30 +0.99 +0.81 +1.24 +Cash dividends declared (3) +0.24 +0.24 +0.24 +0.24 +0.24 +Financial Position at Year-End +Total assets +$ +2,444.6 +$ +2,504.5 +$ +2,622.2 +$ +2,614.4 +$ +851.7 +Debt +820.0 +900.8 +1,150.0 +1,250.0 +11.5 +(1) +This summary should be read in conjunction with the consolidated financial statements and the related notes, which are included in Item 8 of this Annual Report on Form 10-K. +(2) +Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for nonvested restricted common stock. Diluted earnings per share assume the exercise of dilutive stock options and the vesting of all outstanding restricted stock. +(3) +All per share data has been presented to reflect the two-for-one stock split in the form of a stock dividend paid on November 1, 2013 to stockholders of record on October 1, 2013. +(4) +Beginning October 9, 2012, the reported amounts include the operating results of the Performance + Lifestyle business of Collective Brands, Inc. ("PLG"), which the Company acquired in October 2012. +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, manufacturer and marketer of branded footwear, apparel and accessories. The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth .” The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s portfolio consists of 14 brands that are marketed in approximately 200 countries and territories at January 2, 2016 , including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe. In other regions (Asia Pacific, Latin America, portions of Europe, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At January 2, 2016 , the Company operated 390 retail stores in the U.S. and Canada and 70 consumer-direct websites. +2015 FINANCIAL OVERVIEW +• +Revenue for fiscal 2015 was $ 2,691.6 million , a decrease of 2.5 % compared to fiscal 2014. The decrease reflects the negative impact of foreign exchange ($65.6 million), the closure of retail stores ($37.9 million) and the exit of the Patagonia ® footwear business ($22.0 million), which were partially offset by revenue growth, primarily within the Performance Group. +• +Gross margin for fiscal 2015 was 39.1 %, a decrease of 20 basis points from fiscal 2014. The gross margin decline was driven primarily by the negative impact of foreign exchange and a negative mix shift in international markets, which were partially offset by select selling price increases and product cost reductions as well as fewer inventory markdowns. +24 +Table of Contents +• +Operating expenses decreased $ 5.8 million in fiscal 2015, to $ 850.6 million . Operating expenses were favorably impacted by the impact of foreign exchange, lower acquisition-related integration costs associated with the integration of the PLG business, lower incentive compensation expense and lower selling expenses, which were partially offset by incremental brand investments, higher pension expense and incremental restructuring and impairment costs. +• +The effective tax rate in fiscal 2015 was 25.2 % compared to 26.2 % in fiscal 2014. The lower effective tax rate in fiscal 2015 reflects a lower proportion of income generated in higher tax jurisdictions, primarily the U.S., compared to fiscal 2014, which was partially offset by fewer favorable discrete items in fiscal 2015 compared to fiscal 2014. +• +Cash provided by operating activities was $215.5 million during fiscal 2015, which allowed the Company to repurchase $92.6 million of Company common stock, make payments on its long-term debt of $80.9 million and make investments in growth initiatives including infrastructure improvements. +• +The Company declared cash dividends of $ 0.24 per share, in both fiscal 2015 and fiscal 2014. +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. +Fiscal Year +Percent Change vs. Prior Year +(In millions, except per share data) +2015 +2014 +2013 +2015 +2014 +Revenue +$ +2,691.6 +$ +2,761.1 +$ +2,691.1 +(2.5 +)% +2.6 +% +Cost of goods sold +1,636.9 +1,673.8 +1,619.0 +(2.2 +) +3.4 +Restructuring costs +3.0 +1.0 +7.6 +200.0 +(86.8 +) +Gross profit +1,051.7 +1,086.3 +1,064.5 +(3.2 +) +2.0 +Selling, general and administrative expenses +816.0 +815.2 +830.0 +0.1 +(1.8 +) +Acquisition-related integration costs +— +15.2 +41.5 +(100.0 +) +(63.4 +) +Restructuring and impairment costs +34.6 +26.0 +0.7 +33.1 +3,614.3 +Operating profit +201.1 +229.9 +192.3 +(12.5 +) +19.6 +Interest expense, net +38.2 +45.4 +52.0 +(15.9 +) +(12.7 +) +Debt extinguishment costs +1.6 +1.3 +13.1 +23.1 +(90.1 +) +Other expense (income), net +(3.3 +) +1.7 +(0.5 +) +(294.1 +) +440.0 +Earnings before income taxes +164.6 +181.5 +127.7 +(9.3 +) +42.1 +Income tax expense +41.4 +47.6 +26.7 +(13.0 +) +78.3 +Net earnings +123.2 +133.9 +101.0 +(8.0 +) +32.6 +Less: net earnings attributable to noncontrolling interest +0.4 +0.8 +0.6 +(50.0 +) +33.3 +Net earnings attributable to Wolverine World Wide, Inc. +$ +122.8 +$ +133.1 +$ +100.4 +(7.7 +)% +32.6 +% +Diluted earnings per share +$ +1.20 +$ +1.30 +$ +0.99 +(7.7 +)% +31.3 +% +REVENUE +Revenue was $2,691.6 million for fiscal 2015, representing a decrease of 2.5% versus the prior year's revenue of $2,761.1 million . The decrease reflects the negative impact of foreign exchange ($65.6 million), the closure of retail stores ($37.9 million) and the exit of the Patagonia ® footwear business ($22.0 million), which were partially offset by revenue growth, primarily within the Performance Group. International revenue represented 27.9%, 27.9% and 26.2% of total reported revenues in fiscal years 2015, 2014 and 2013, respectively. +Revenue was $2,761.1 million for fiscal 2014, representing an increase of 2.6% versus the prior year's revenue of $2,691.1 million. High single-digit growth from the Heritage Group and mid single-digit growth from the Performance Group was partially offset by low single-digit revenue decline from the Lifestyle Group. Changes in foreign exchange rates decreased reported revenue by $6.2 million in fiscal 2014. +GROSS MARGIN +For fiscal 2015, the Company’s gross margin was 39.1 % compared to 39.3 % in fiscal 2014. The gross margin decline was driven primarily by a the negative impact of foreign exchange (50 basis points) and a negative mix shift in international markets (40 basis +25 +Table of Contents +points), which were partially offset by select selling price increases and product cost reductions (40 basis points) as well as fewer inventory markdowns (30 basis points). +For fiscal 2014, the Company’s gross margin was 39.3% compared to 39.6% in fiscal 2013. The decrease was driven by higher product costs (30 basis points), a negative mix shift in international markets (30 basis points), incremental LIFO expense (10 basis points), impact of inventory liquidation related to retail store closures (10 basis points) and negative foreign currency impact (10 basis points), which were partially offset by select selling price increases (60 basis points). +OPERATING EXPENSES +Operating expenses decreased $ 5.8 million in fiscal 2015, to $ 850.6 million . Operating expenses were favorably impacted by foreign exchange ($19.8 million), the lack of acquisition-related integration costs associated with the integration of the PLG business ($15.2 million), lower incentive compensation expenses ($13.6 million) and lower selling expenses ($6.1 million), which were partially offset by incremental brand investments ($24.3 million), higher pension expense ($16.0 million) and incremental restructuring and impairment costs ($8.6 million). +Operating expenses decreased $15.8 million in fiscal 2014, to $856.4 million. Operating expenses were favorably impacted by lower acquisition-related integration costs associated with the integration of the PLG business ($26.3 million), lower pension expense ($25.4 million) and lower incentive compensation expenses ($5.8 million). Partially offsetting these declines were incremental restructuring costs ($25.3 million), incremental selling expenses ($6.5 million) and incremental brand building expense ($8.8 million). Changes in foreign exchange rates had a $1.8 million favorable impact on reported operating expenses. +INTEREST, OTHER AND TAXES +Net interest expense was $ 38.2 million in fiscal 2015 compared to $45.4 million in fiscal 2014. The decrease was due primarily to lower average principal balances on the Company’s outstanding debt . +Net interest expense was $45.4 million in fiscal 2014 compared to $52.0 million in fiscal 2013. The decrease reflects the benefits of the amendment to the Credit Agreement executed in the fourth quarter of fiscal 2013 and lower average principal balances. +The Company incurred $1.6 million of debt extinguishment costs during the third quarter of fiscal 2015 in connection with the refinancing of the Company's debt. The Company incurred $1.3 million of debt extinguishment costs during the fourth quarter of fiscal 2014 due to accelerating the amortization of capitalized deferred financing fees in relation to debt repayments. The Company incurred $13.1 million of debt extinguishment costs during the fourth quarter of fiscal 2013 in connection with the refinancing of the Company's debt. These costs represent a write-off of previously capitalized deferred financing fees. +The Company’s effective tax rates in fiscal 2015 and fiscal 2014 were 25.2 % and 26.2 %, respectively. The lower effective tax rate in fiscal 2015 reflects a lower proportion of income generated in higher tax jurisdictions, primarily the U.S., compared to fiscal 2014, which was partially offset by fewer favorable discrete items in fiscal 2015 compared to fiscal 2014. +The Company’s effective tax rates in fiscal 2014 and fiscal 2013 were 26.2% and 20.9%, respectively. The higher effective tax rate in fiscal 2014 reflects a greater proportion of income generated in higher tax jurisdictions, primarily the U.S., compared to 2013. In addition, the 2013 tax rate reflects higher acquisition-related integration costs that are deductible primarily in high statutory tax rate jurisdictions. +The Company maintains management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that are generally lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings is generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. The Company has not provided for U.S. taxes for earnings generated in foreign jurisdictions because it intends to reinvest these earnings indefinitely outside the U.S. However, if certain foreign earnings previously treated as permanently reinvested are repatriated, the additional U.S. tax liability could have a material adverse effect on the Company’s results of operations and financial position. +REPORTABLE OPERATING SEGMENTS +For the fiscal periods reported, the Company has three reportable operating segments. The Company’s operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The Company’s reportable operating segments are: +• +Lifestyle Group , consisting of Sperry ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Chaco ® footwear, Cushe ® footwear and includes Patagonia ® footwear during fiscal 2014 and fiscal 2013; and +26 +Table of Contents +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear and HyTest ® safety footwear. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including acquisition-related transaction and integration costs and restructuring and impairment costs. +On February 4, 2016, the Company announced certain organizational changes impacting its operating segments structure. The Company is evaluating the impacts of these changes to its reportable operating segments which will be reflected beginning with the first quarter of fiscal 2016. +The reportable operating segment results for fiscal years 2015, 2014 and 2013 are as follows: +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2015 +2014 +Change +2014 +2013 +Change +Revenue: +Lifestyle Group +$ +1,004.8 +$ +1,059.3 +$ +(54.5 +) +(5.1 +)% +$ +1,059.3 +$ +1,086.6 +$ +(27.3 +) +(2.5 +)% +Performance Group +991.3 +990.7 +0.6 +0.1 +990.7 +945.8 +44.9 +4.7 +Heritage Group +590.8 +607.0 +(16.2 +) +(2.7 +) +607.0 +567.4 +39.6 +7.0 +Other +104.7 +104.1 +0.6 +0.6 +104.1 +91.3 +12.8 +14.0 +Total +$ +2,691.6 +$ +2,761.1 +$ +(69.5 +) +(2.5 +)% +$ +2,761.1 +$ +2,691.1 +$ +70.0 +2.6 +% +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2015 +2014 +Change +2014 +2013 +Change +Operating profit (loss): +Lifestyle Group +$ +117.2 +$ +130.2 +$ +(13.0 +) +(10.0 +)% +$ +130.2 +$ +168.2 +$ +(38.0 +) +(22.6 +)% +Performance Group +194.8 +197.6 +(2.8 +) +(1.4 +) +197.6 +179.8 +17.8 +9.9 +Heritage Group +80.7 +95.4 +(14.7 +) +(15.4 +) +95.4 +85.7 +9.7 +11.3 +Other +3.3 +3.9 +(0.6 +) +(15.4 +) +3.9 +0.2 +3.7 +1,850.0 +Corporate +(194.9 +) +(197.2 +) +2.3 +(1.2 +) +(197.2 +) +(241.6 +) +44.4 +18.4 +Total +$ +201.1 +$ +229.9 +$ +(28.8 +) +(12.5 +)% +$ +229.9 +$ +192.3 +$ +37.6 +19.6 +% +Further information regarding the reportable operating segments can be found in Note 15 to the consolidated financial statements. +Lifestyle Group +The Lifestyle Group’s revenue decreased $ 54.5 million , or 5.1 %, in fiscal 2015 compared to fiscal 2014. The decline was partially due to a low teens revenue decline for Stride Rite ® and a low twenties decline for Hush Puppies ® , which were partially offset by low single-digit revenue increases for Sperry ® and Keds ® . The Stride Rite ® decrease resulted from the planned closure of retail stores, while the Hush Puppies ® decline was due to strategic reductions in the U.S. department store channel. The Keds ® increase was driven by growth in the Asia Pacific region due to new distributor arrangements. The Sperry ® increase was a result of strong eCommerce revenue growth and new retail stores. +The Lifestyle Group’s operating profit decreased $ 13.0 million , or 10.0 %, in fiscal 2015 compared to fiscal 2014. The decrease was due primarily to the revenue decline and lower gross margin for Stride Rite ® due to retail store closure activities, partially offset by higher gross margin for Sperry ® due primarily to higher selling prices and favorable product mix. +The Lifestyle Group’s revenue decreased $27.3 million, or 2.5%, in fiscal 2014 compared to fiscal 2013. The decline was driven by a mid single-digit revenue decline for Sperry ® , a high single-digit decline for Hush Puppies® and a low single-digit decline for Stride Rite ® . The Sperry ® decline was driven by decreases in the domestic boat shoe category and a distribution channel realignment in the family channel, partially offset by sales from new retail stores. The Hush Puppies ® decline was due to strategic reductions in the U.S. department store channel, while the Company believes the Stride Rite ® decline was impacted by lower retail store traffic and negative weather trends. These declines were partially offset by growth in the high teens for Keds ® , driven by continued marketing investment in support of the brand. +The Lifestyle Group’s operating profit decreased $38.0 million, or 22.6%, in fiscal 2014 compared to fiscal 2013. The decrease was due primarily to the revenue decline and negative product mix for Sperry ® and a lower gross margin for Stride Rite ® due to retail store close-out activities. Partially offsetting these declines was a higher operating profit for Keds ® due to higher revenues. +27 +Table of Contents +Performance Group +The Performance Group’s revenue increased $ 0.6 million , or 0.1 %, in fiscal 2015 compared to fiscal 2014. The growth was driven by high single-digit growth from Saucony ® and growth in the low fifties from Chaco ® , which were partially offset by a mid single-digit decline from Merrell ® and the exit of the Patagonia ® footwear license. The Saucony ® increase was due to growth in its lifestyle oriented Originals product and Technical Running product, partially offset by the negative impact from foreign exchange. The Chaco ® increase was due to increased demand for its core sandal product. The decrease from Merrell ® was driven by the negative impact of foreign exchange. +The Performance Group’s operating profit decreased $ 2.8 million , or 1.4 %, in fiscal 2015 compared to fiscal 2014. The operating profit decrease was due primarily to the revenue decreases for Merrell ® and Patagonia ® and a gross margin decrease from Merrell ® due to unfavorable foreign currency forward contracts. These decreases were partially offset by the revenue increase from Chaco ® and higher a gross margin from Chaco ® due to fewer close-out sales. Saucony ® also drove higher operating profit due to the increased revenues, which were partially offset by lower gross margins due to unfavorable foreign currency forward contracts. +The Performance Group’s revenue increased $44.9 million, or 4.7%, in fiscal 2014 compared to fiscal 2013. The positive growth rate was driven by high single-digit growth from Saucony ® , low single-digit growth from Merrell ® and growth in the mid twenties from Chaco ® . Saucony ® benefited from growth in its franchise products and the lifestyle-oriented Originals product, Merrell ® benefited from growth in its Performance Outdoor product category and Chaco ® experienced increased demand for its core sandal product. +The Performance Group’s operating profit increased $17.8 million, or 9.9%, in fiscal 2014 compared to fiscal 2013. The operating profit increase was due primarily to the revenue increases for Merrell ® , Saucony ® and Chaco ® and gross margin expansion from Merrell ® and Chaco ® due to a reduction in low margin close-out sales. +Heritage Group +The Heritage Group’s revenue decreased $ 16.2 million , or 2.7 %, in fiscal 2015 compared to fiscal 2014. The revenue decline was the result of a mid single-digit decline from Cat ® , a high teen decline from Sebago ® and a low single-digit decline from Wolverine ® . Partially offsetting these declines was mid single-digit growth from Bates ® . The Cat ® decrease resulted from the negative impact of foreign exchange. The Wolverine decline was due primarily to unseasonably warm winter weather and higher inventory levels at key retail partners in the second half of fiscal 2015, while the Sebago ® decline was due to the negative impact of foreign exchange and higher inventory levels at key retail partners in the second half of fiscal 2015. The Bates ® increase was driven by increases in its domestic contract business. +The Heritage Group’s operating profit decreased $ 14.7 million , or 15.4 %, in fiscal 2015 compared to fiscal 2014. The operating profit decrease was due primarily to the revenue decreases for Wolverine ® , Cat ® and Sebago ® and lower gross margin for Cat ® due to a negative mix shift in international markets and higher domestic closeout sales. +The Heritage Group’s revenue increased $39.6 million, or 7.0%, in fiscal 2014 compared to fiscal 2013. The positive growth rate was driven by high single-digit growth from Wolverine ® , high teen growth from Cat ® and growth in the mid teens from Harley-Davidson ® . Wolverine ® benefited from growth in its Work, Outdoor and Heritage product collections. Cat ® benefited from strong global demand and a higher mix of top-line international revenue. Partially offsetting these increases was a revenue decline in the mid teens for Sebago ® due to poor sell through of key product categories. +The Heritage Group’s operating profit increased $9.7 million, or 11.3%, in fiscal 2014 compared to fiscal 2013. The operating profit increase was due primarily to the revenue increases for Wolverine ® , Cat ® and Harley-Davidson ® . +Corporate +Corporate expenses decreased $2.3 million in fiscal 2015 compared to fiscal 2014. Corporate expenses were favorably impacted by the lack of acquisition-related integration costs associated with the integration of the PLG business ($15.2 million) and lower incentive compensation expenses ($13.6 million), which were partially offset by higher pension expense ($16.0 million) and incremental restructuring and impairment costs ($10.6 million). +Corporate expenses decreased $44.4 million in fiscal 2014 compared to fiscal 2013. Corporate expenses were favorably impacted by lower acquisition-related integration costs associated with the integration of the PLG business ($26.3 million), lower pension expense ($25.4 million) and lower incentive compensation expenses ($5.8 million), which were partially offset by incremental restructuring costs ($18.7 million). +28 +Table of Contents +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) +2015 +2014 +2013 +Cash and cash equivalents +$ +194.1 +$ +223.8 +$ +214.2 +Debt +820.0 +900.8 +1,150.0 +Available revolving credit facility (1) +496.2 +196.4 +196.5 +Cash provided by operating activities +215.5 +314.6 +202.3 +Cash used in investing activities +(50.0 +) +(34.8 +) +(44.7 +) +Cash used in financing activities +(187.3 +) +(270.4 +) +(112.8 +) +Additions to property, plant and equipment +46.4 +30.0 +41.7 +Depreciation and amortization +48.7 +53.3 +56.2 +(1) +Amounts are net of both borrowings and outstanding standby letters of credit in accordance with the terms of the revolving credit facility. +Liquidity +Cash and cash equivalents of $ 194.1 million as of January 2, 2016 were $29.7 million lower compared to January 3, 2015. The Company had $ 496.2 million available under a revolving credit agreement (the “Revolving Credit Facility”) as of January 2, 2016. +At January 2, 2016, the Company had $ 164.2 million of cash and cash equivalents located in foreign jurisdictions, in which the Company intends to permanently reinvest these funds. The Company had outstanding standby letters of credit under the Revolving Credit Facility of approximately $3.8 million at January 2, 2016. +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during fiscal 2015 was lower compared to fiscal 2014 due primarily to lower earnings performance in the current year and less favorable changes in working capital balances compared to fiscal 2014. During fiscal 2015 working capital balances drove a source of cash of $1.7 million, which includes the negative impact of increased inventories of $68.8 million, which were partially offset by an increase in accounts payable of $52.9 million and decrease in other operating assets of $14.6 million. +Higher earnings performance during fiscal 2014, along with the sale of certain accounts receivable, drove the increase in cash from operations compared to fiscal 2013. During fiscal 2014, a decrease in net working capital represented a source of cash of $86.9 million. Working capital balances were favorably impacted by a decrease in accounts receivable of $76.5 million due primarily to the cash inflow of $65.5 million related to the sales of certain accounts receivable described above, partially offset by an increase in other operating assets of $17.8 million. An increase in accounts payable and other operating liabilities represented a source of cash of $16.2 million and $9.1 million, respectively, in fiscal 2014. +Investing Activities +The Company made capital expenditures of $ 46.4 million in fiscal 2015 compared to $ 30.0 million in fiscal 2014. The increase in capital expenditures during fiscal 2015 was primarily due to higher retail store and distribution center investments. The majority of the Company's capital expenditures in both years were for retail store investments, information system enhancements and building improvements. +The Company made capital expenditures of $30.0 million in fiscal 2014 compared to $41.7 million in fiscal 2013. The decrease in capital expenditures during fiscal 2014 was primarily due to fewer new retail stores being opened. The majority of the Company's capital expenditures in both years were for retail store investments, information system enhancements and building improvements. +Financing Activities +On July 13, 2015, the Company amended its credit agreement (as amended, the "Credit Agreement"). The amendment replaced the previous term loan facility and revolving credit facility with a new $450.0 million Term Loan A Facility and a new $500.0 million Revolving Credit Facility, and extended the maturity date of these facilities to July 13, 2020. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $1,425.0 million, unless certain specified conditions set forth in the Credit +29 +Table of Contents +Agreement are met. The Company incurred $1.6 million of debt extinguishment costs during the third quarter of fiscal 2015 in connection with the refinancing. These costs represent a write-off of previously capitalized deferred financing fees. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $500.0 million, which includes a $200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Credit Facility of $3.8 million and $3.6 million as of January 2, 2016 and January 3, 2015, respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +On October 9, 2012, the Company issued $375.0 million of senior notes (the "Public Bonds"), which bear interest at a 6.125% fixed rate and are due in 2020. Related interest payments are due semi-annually. The Public Bonds are guaranteed by substantially all of the Company’s domestic subsidiaries. As of January 2, 2016, the Company was in compliance with all covenants and performance ratios. +The Company's debt at January 2, 2016 was $ 820.0 million compared to $ 900.8 million at January 3, 2015. The net decrease in debt was primarily a result of principal payments on the Term Loan A Facility, including $58.0 million of voluntary debt payments during fiscal 2015. The decrease in debt during fiscal 2014 was primarily a result of principal payments, including $200.0 million of voluntary debt payments. +The Company has a $5.0 million (or the equivalent amount in Chinese renminbi) revolving line of credit facility that is uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender. There were no borrowings against this facility for all periods presented. +Cash flow from operating activities, along with borrowings on the Revolving Credit Facility, if any, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flows from operating activities are expected to be used to reduce debt, fund internal and external growth initiatives, purchase property, plant and equipment, pay dividends or repurchase the Company’s common stock. +On February 12, 2014, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of up to $ 200.0 million in common stock over a four-year period. The Company repurchased $92.6 million of Company common stock during fiscal 2015 under the stock repurchase plan. The Company did not repurchase any shares of Company common stock in fiscal 2014 or fiscal 2013 under a stock repurchase program. In addition to the stock repurchase program activity, the Company acquired $ 7.7 million , $ 10.5 million and $ 0.8 million of shares in fiscal years 2015, 2014 and 2013, respectively, in connection with employee transactions related to stock incentive plans. +On July 11, 2013, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock dividend which was paid on November 1, 2013 to stockholders of record on October 1, 2013. +The Company declared cash dividends of $0.24 per share in fiscal years 2015, 2014 and 2013. Dividends paid totaled $ 24.4 million , $ 24.0 million and $ 23.7 million , for fiscal years 2015, 2014 and 2013, respectively. +NEW ACCOUNTING STANDARDS +Refer to Note 2 of the consolidated financial statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES +The preparation of the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s consolidated financial statements. +30 +Table of Contents +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances for the relevant periods may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, an adjustment to net revenues would be recorded in the period the determination was made. +Accounts Receivable +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers' failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. Historically, losses have been within the Company’s expectations. Adjustments to these estimates may be required if the financial condition of the Company’s customers were to change. If the Company were to determine adjustments to the allowance for uncollectible accounts were appropriate, the Company would record either an increase or decrease to general and administrative expenses in the period in which the Company made such a determination. +Inventory +The Company values its inventory at the lower of cost or market. Cost is determined by the LIFO method for all domestic raw materials and work-in-process inventories and certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations.The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or market for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated market value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company performs the second step of the goodwill impairment test to determine the impairment charge, if any. The second step involves a hypothetical allocation of the estimated fair value of the reporting unit to its net tangible and intangible assets (excluding goodwill) as if the reporting unit were newly acquired, which results in an implied fair value of the goodwill. The amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual +31 +Table of Contents +indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. In the fourth quarter of fiscal 2015, as a result of its testing, the Company recorded a $2.5 million impairment charge for the Stride Rite trade name. The Company did not recognize any impairment charges for goodwill during fiscal 2015 or for goodwill or indefinite-lived intangible assets during the fiscal years 2014 or 2013, as the annual impairment testing indicated that all reporting unit goodwill and indefinite-lived intangible asset fair values exceeded their respective carrying values. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. See Note 16 to the consolidated financial statements for information related to long-lived assets that were determined to be impaired in fiscal 2015. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that are generally lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. The Company has not provided for U.S. taxes for earnings generated in foreign jurisdictions because it plans to reinvest these earnings indefinitely outside the U.S. However, if certain foreign earnings previously treated as permanently reinvested are repatriated, the additional U.S. tax liability could have a material adverse effect on the Company’s results of operations and financial position. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the fiscal year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent fiscal year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plan’s expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 5.00 % at January 2, 2016 compared to 4.37% at January 3, 2015. Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 7.25% for fiscal 2016. This determination is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +32 +Table of Contents +Stock-Based Compensation +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB") Accounting Standards Codification ("ASC") Topic 718, Compensation – Stock Compensation ("ASC 718"). The Company utilizes the Black-Scholes-Merton formula, which requires the input of subjective assumptions to calculate the amount to expense in the consolidated statements of operations related to stock options granted to employees. These assumptions include estimating (a) the length of time employees will retain their vested stock options before exercising them (“expected term”), (b) the volatility of the Company’s common stock price over the expected term and (c) the number of options that are expected to be forfeited. Changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense amounts recognized in the consolidated statements of operations. +OFF-BALANCE SHEET ARRANGEMENTS +The Company has no off-balance sheet arrangements as of January 2, 2016 . +CONTRACTUAL OBLIGATIONS +As of January 2, 2016 , the Company had the following payments under contractual obligations due by period: +(In millions) +Total +Less than +1 year +1-3 years +3-5 years +More than +5 years +Operating leases +$ +332.2 +$ +53.6 +$ +84.3 +$ +65.8 +$ +128.5 +Capital lease +0.7 +0.1 +0.2 +0.3 +0.1 +Debt obligations (1) +985.9 +50.0 +130.0 +805.9 +— +Purchase obligations (2) +325.1 +325.1 +— +— +— +Deferred compensation +2.5 +0.4 +0.9 +0.7 +0.5 +Pension (3) +1.5 +1.5 +— +— +— +Supplemental Executive Retirement Plan +40.1 +3.9 +7.8 +7.8 +20.6 +Dividends declared +6.0 +6.0 +— +— +— +Minimum royalties +8.2 +2.0 +3.2 +3.0 +— +Minimum advertising +23.8 +3.1 +6.5 +6.9 +7.3 +Total (4) +$ +1,726.0 +$ +445.7 +$ +232.9 +$ +890.4 +$ +157.0 +(1) +Includes principal and interest payments on the Company’s debt, net of the impact of the interest rate swaps. Estimated future interest payments on outstanding debt obligations are based on interest rates as of January 2, 2016 . Actual cash outflows may differ significantly due to changes in underlying interest rates. See Note 10 to the consolidated financial statements for additional information on the Company's interest rate swaps. +(2) +Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) +Pension obligations reflect expected pension funding, which is the amount of required funding obligations under government regulation. Funding amounts are calculated on an annual basis and no required or planned funding beyond one year has been determined. +(4) +The total amount of unrecognized tax benefits on the consolidated balance sheet at January 2, 2016 is $ 8.7 million . At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. +33 +Table of Contents +Under the provisions of FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Colombia, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Colombian peso, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At January 2, 2016 and January 3, 2015 , the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $ 215.8 million and $ 141.6 million , with maturities ranging up to 349 and 336 days, respectively. +Through the end of fiscal 2015, the Company had sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies, but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company currently does not hedge these net investments. At January 2, 2016 , a stronger U.S. dollar compared to foreign currencies versus fiscal 2014 decreased the value of these investments in net assets by $ 30.4 million . At January 3, 2015 , a stronger U.S. dollar compared to foreign currencies versus fiscal 2013 decreased the value of these investments in net assets by $ 17.4 million . +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on borrowings used to finance acquisitions and working capital requirements. The Company’s total variable-rate debt was $ 444.4 million at the end of fiscal 2015 and the Company held one interest rate swap agreement denominated in U.S. dollars that effectively convert $320.9 million of its variable-rate debt to fixed-rate debt as of January 2, 2016 . The interest rate swap derivative instruments are held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instruments is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swaps was determined to be a net liability of $ 3.7 million at the end of fiscal 2015 . As of January 2, 2016 , the weighted-average interest rate on the Company’s variable-rate debt was approximately 1.9%. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $1.2 million. +The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +34 +Table of Contents +Item 8. +Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +36 +Consolidated Statements of Comprehensive Income +37 +Consolidated Balance Sheets +38 +Consolidated Statements of Cash Flows +40 +Consolidated Statements of Stockholders' Equity +41 +Note 1. Summary of Significant Accounting Policies +43 +Note 2. New Accounting Standards +45 +Note 3. Earnings Per Share +46 +Note 4. Goodwill and Other Intangibles +47 +Note 5. Accounts Receivable +48 +Note 6. Inventories +49 +Note 7. Debt +49 +Note 8. Accumulated Other Comprehensive Income (Loss) +50 +Note 9. Property, Plant and Equipment +51 +Note 10. Financial Instruments and Risk Management +51 +Note 11. Stock-Based Compensation +52 +Note 12. Retirement Plans +55 +Note 13. Income Taxes +58 +Note 14. Litigation and Contingencies +60 +Note 15. Business Segments +61 +Note 16. Restructuring Activities +63 +Note 17. Subsidiary Guarantors of the Public Bonds +65 +Note 18. Quarterly Results of Operations (Unaudited) +76 +Reports of Independent Registered Public Accounting Firm +77 +35 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) +2015 +2014 +2013 +Revenue +$ +2,691.6 +$ +2,761.1 +$ +2,691.1 +Cost of goods sold +1,636.9 +1,673.8 +1,619.0 +Restructuring costs +3.0 +1.0 +7.6 +Gross profit +1,051.7 +1,086.3 +1,064.5 +Selling, general and administrative expenses +816.0 +815.2 +830.0 +Acquisition-related integration costs +— +15.2 +41.5 +Restructuring and impairment costs +34.6 +26.0 +0.7 +Operating profit +201.1 +229.9 +192.3 +Other expenses: +Interest expense, net +38.2 +45.4 +52.0 +Debt extinguishment costs +1.6 +1.3 +13.1 +Other expense (income), net +(3.3 +) +1.7 +(0.5 +) +Total other expenses +36.5 +48.4 +64.6 +Earnings before income taxes +164.6 +181.5 +127.7 +Income taxes +41.4 +47.6 +26.7 +Net earnings +123.2 +133.9 +101.0 +Less: net earnings attributable to noncontrolling interest +0.4 +0.8 +0.6 +Net earnings attributable to Wolverine World Wide, Inc. +$ +122.8 +$ +133.1 +$ +100.4 +Net earnings per share (see Note 3): +Basic +$ +1.22 +$ +1.33 +$ +1.01 +Diluted +$ +1.20 +$ +1.30 +$ +0.99 +See accompanying notes to consolidated financial statements. +36 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income +Fiscal Year +(In millions) +2015 +2014 +2013 +Net earnings +$ +123.2 +$ +133.9 +$ +101.0 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(31.8 +) +(18.5 +) +(5.4 +) +Foreign exchange contracts: +Unrealized gain (loss) arising during the period, net of taxes of $4.9, $4.1 and $(0.2) +10.8 +9.1 +(0.4 +) +Reclassification adjustments into cost of goods sold, net of taxes of $(6.0), $0.2 and $0.6 +(13.0 +) +0.3 +1.3 +Interest rate swaps: +Unrealized gain (loss) arising during the period, net of taxes of $(2.2), $(0.1) and $0.8 +(4.2 +) +(0.2 +) +1.6 +Reclassification adjustments into interest expense, net of taxes of $0.7, $0 and $0 +1.4 +— +— +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $8.2, $(19.6) and $33.1 +15.2 +(36.3 +) +61.4 +Amortization of prior actuarial losses, net of taxes of $7.3, $2.6 and $10.7 +13.5 +4.8 +19.7 +Amortization of prior service cost +0.1 +0.1 +0.1 +Settlement gain included in net income, net of taxes of $0, $(0.3) and $0 +— +(0.7 +) +— +Other comprehensive (loss) income +(8.0 +) +(41.4 +) +78.3 +Less: other comprehensive loss attributable to noncontrolling interest +(1.4 +) +(1.1 +) +(0.1 +) +Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. +(6.6 +) +(40.3 +) +78.4 +Comprehensive income +115.2 +92.5 +179.3 +Less: comprehensive (loss) income attributable to noncontrolling interest +(1.0 +) +(0.3 +) +0.5 +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +116.2 +$ +92.8 +$ +178.8 +See accompanying notes to consolidated financial statements. +37 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) +January 2, +2016 +January 3, +2015 +ASSETS +Current assets: +Cash and cash equivalents +$ +194.1 +$ +223.8 +Accounts receivable, less allowances: +January 2, 2016 – $44.4 +January 3, 2015 – $41.0 +298.9 +312.7 +Inventories: +Finished products +448.0 +398.1 +Raw materials and work-in-process +18.6 +15.9 +Total inventories +466.6 +414.0 +Deferred income taxes +— +28.1 +Prepaid expenses and other current assets +54.2 +63.6 +Total current assets +1,013.8 +1,042.2 +Property, plant and equipment: +Gross cost +431.5 +415.3 +Accumulated depreciation +(299.9 +) +(278.5 +) +Property, plant and equipment, net +131.6 +136.8 +Other assets: +Goodwill +429.1 +438.8 +Indefinite-lived intangibles +685.4 +690.5 +Amortizable intangibles, net +97.3 +112.1 +Deferred income taxes +3.7 +2.8 +Deferred financing costs, net +13.8 +16.5 +Other +69.9 +64.8 +Total other assets +1,299.2 +1,325.5 +Total assets +$ +2,444.6 +$ +2,504.5 +See accompanying notes to consolidated financial statements. +38 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets – continued +(In millions, except share data) +January 2, +2016 +January 3, +2015 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +199.7 +$ +149.4 +Accrued salaries and wages +28.5 +36.1 +Other accrued liabilities +108.2 +108.5 +Current maturities of long-term debt +16.9 +46.7 +Total current liabilities +353.3 +340.7 +Long-term debt, less current maturities +803.1 +854.1 +Accrued pension liabilities +109.6 +128.1 +Deferred income taxes +178.6 +217.0 +Other liabilities +30.3 +26.6 +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity: +Common stock – par value $1, authorized 320,000,000 shares; shares issued (including shares in treasury): +January 2, 2016 – 103,915,928 shares +January 3, 2015 – 102,253,150 shares +103.9 +102.3 +Additional paid-in capital +75.9 +40.1 +Retained earnings +950.8 +852.2 +Accumulated other comprehensive loss +(56.1 +) +(49.5 +) +Cost of shares in treasury: +January 2, 2016 – 5,457,726 shares +January 3, 2015 – 416,812 shares +(110.8 +) +(11.6 +) +Total Wolverine World Wide, Inc. stockholders’ equity +963.7 +933.5 +Noncontrolling interest +6.0 +4.5 +Total stockholders’ equity +969.7 +938.0 +Total liabilities and stockholders’ equity +$ +2,444.6 +$ +2,504.5 +See accompanying notes to consolidated financial statements. +39 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow +Fiscal Year +(In millions) +2015 +2014 +2013 +OPERATING ACTIVITIES +Net earnings +$ +123.2 +$ +133.9 +$ +101.0 +Adjustments necessary to reconcile net earnings to net cash provided by operating activities: +Depreciation and amortization +48.7 +53.3 +56.2 +Deferred income taxes +(26.7 +) +(19.1 +) +(27.8 +) +Stock-based compensation expense +18.7 +25.1 +28.2 +Excess tax benefits from stock-based compensation +(4.9 +) +(5.6 +) +(3.4 +) +Pension contribution +— +(3.9 +) +(2.4 +) +Pension and SERP expense +27.9 +11.9 +37.3 +Debt extinguishment costs +1.6 +1.3 +13.1 +Restructuring and impairment costs +37.6 +27.0 +8.3 +Cash payments related to restructuring costs +(10.3 +) +(7.7 +) +(1.4 +) +Other +(2.0 +) +11.5 +(4.3 +) +Changes in operating assets and liabilities: +Accounts receivable +5.8 +76.5 +(41.3 +) +Inventories +(68.8 +) +2.9 +35.1 +Other operating assets +14.6 +(17.8 +) +12.8 +Accounts payable +52.9 +16.2 +(26.5 +) +Other operating liabilities +(2.8 +) +9.1 +17.4 +Net cash provided by operating activities +215.5 +314.6 +202.3 +INVESTING ACTIVITIES +Additions to property, plant and equipment +(46.4 +) +(30.0 +) +(41.7 +) +Proceeds from sales of property, plant and equipment +— +— +2.8 +Investments in joint ventures +— +(1.1 +) +(2.5 +) +Other +(3.6 +) +(3.7 +) +(3.3 +) +Net cash used in investing activities +(50.0 +) +(34.8 +) +(44.7 +) +FINANCING ACTIVITIES +Borrowings of long-term debt +450.0 +— +775.0 +Payments on long-term debt +(530.9 +) +(249.8 +) +(875.0 +) +Payments of debt issuance costs +(2.4 +) +— +(2.3 +) +Cash dividends paid +(24.4 +) +(24.0 +) +(23.7 +) +Purchase of common stock for treasury +(92.6 +) +— +— +Purchases of shares under employee stock plans +(7.7 +) +(10.5 +) +(0.8 +) +Proceeds from the exercise of stock options +13.3 +7.3 +8.6 +Excess tax benefits from stock-based compensation +4.9 +5.6 +3.4 +Contributions from noncontrolling interest +2.5 +1.0 +2.0 +Net cash used in financing activities +(187.3 +) +(270.4 +) +(112.8 +) +Effect of foreign exchange rate changes +(7.9 +) +0.2 +(2.0 +) +(Decrease) increase in cash and cash equivalents +(29.7 +) +9.6 +42.8 +Cash and cash equivalents at beginning of the year +223.8 +214.2 +171.4 +Cash and cash equivalents at end of the year +$ +194.1 +$ +223.8 +$ +214.2 +OTHER CASH FLOW INFORMATION +Interest paid +$ +34.9 +$ +42.2 +$ +48.8 +Net income taxes paid +$ +49.8 +$ +70.2 +$ +33.5 +See accompanying notes to consolidated financial statements. +40 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at December 29, 2012 +$ +98.7 +$ +— +$ +633.4 +$ +(87.5 +) +$ +(2.2 +) +$ +1.3 +$ +643.7 +Net earnings +100.4 +0.6 +101.0 +Other comprehensive income (loss) +78.3 +(0.1 +) +78.2 +Shares issued under stock incentive plans, net of forfeitures (2,068,751 shares) +1.1 +1.1 +Stock-based compensation expense +28.2 +28.2 +Amounts associated with shares issued under stock incentive plans: +Proceeds over par value +7.5 +7.5 +Income tax benefits +3.9 +3.9 +Issuance of performance shares (785,458 shares) +(0.4 +) +(0.4 +) +Issuance of treasury shares (26,590 shares) +— +0.6 +0.6 +Shares acquired for treasury (17,085 shares) +(0.8 +) +(0.8 +) +Cash dividends declared ($0.24 per share) +(23.6 +) +(23.6 +) +Capital contribution from noncontrolling interest +2.0 +2.0 +Impact of stock split in the form of stock dividend +1.0 +(34.2 +) +32.9 +0.3 +— +Balance at December 28, 2013 +$ +100.8 +$ +5.0 +$ +743.1 +$ +(9.2 +) +$ +(2.1 +) +$ +3.8 +$ +841.4 +Net earnings +133.1 +0.8 +133.9 +Other comprehensive loss +(40.3 +) +(1.1 +) +(41.4 +) +Shares issued under stock incentive plans, net of forfeitures (795,523 shares) +0.8 +(0.8 +) +— +Shares issued for stock options exercised, net (639,655 shares) +0.7 +6.6 +7.3 +Stock-based compensation expense +25.1 +25.1 +Income tax benefits from stock incentive plans +4.2 +4.2 +Cash dividends declared ($0.24 per share) +(24.0 +) +(24.0 +) +Issuance of treasury shares (35,484 shares) +— +1.0 +1.0 +Purchases of shares under employee stock plans (379,782 shares) +(10.5 +) +(10.5 +) +Capital contribution from noncontrolling interest +1.0 +1.0 +Balance at January 3, 2015 +$ +102.3 +$ +40.1 +$ +852.2 +$ +(49.5 +) +$ +(11.6 +) +$ +4.5 +$ +938.0 +See accompanying notes to consolidated financial statements. +41 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at January 3, 2015 +$ +102.3 +$ +40.1 +$ +852.2 +$ +(49.5 +) +$ +(11.6 +) +$ +4.5 +$ +938.0 +Net earnings +122.8 +0.4 +123.2 +Other comprehensive loss +(6.6 +) +(1.4 +) +(8.0 +) +Shares issued under stock incentive plans, net of forfeitures (721,621 shares) +0.7 +(0.7 +) +— +Shares issued for stock options exercised, net (941,157 shares) +0.9 +12.4 +13.3 +Stock-based compensation expense +18.7 +18.7 +Income tax benefits from stock incentive plans +5.4 +5.4 +Cash dividends declared ($0.24 per share) +(24.2 +) +(24.2 +) +Issuance of treasury shares (40,016 shares) +— +1.1 +1.1 +Purchase of common stock for treasury (4,804,665 shares) +(92.6 +) +(92.6 +) +Purchases of shares under employee stock plans (276,275 shares) +(7.7 +) +(7.7 +) +Capital contribution from noncontrolling interest +2.5 +2.5 +Balance at January 2, 2016 +$ +103.9 +$ +75.9 +$ +950.8 +$ +(56.1 +) +$ +(110.8 +) +$ +6.0 +$ +969.7 +See accompanying notes to consolidated financial statements. +42 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years Ended January 2, 2016 , January 3, 2015 and December 28, 2013 +1. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; children’s footwear, industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Cushe ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Soft Style ® , Sperry ® , Stride Rite ® and Wolverine ® . Licensing and distribution arrangements with third parties extend the global reach of the Company’s brand portfolio. The Company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers, as well as a leathers division that markets Wolverine Performance Leathers™ . +Principles of Consolidation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal 2015 had 52 weeks, fiscal 2014 had 53 weeks and fiscal 2013 contained 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, a reduction or increase to net revenues would be recorded in the period this determination was made. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Shipping and Handling Costs +Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates market. +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +43 +Table of Contents +Inventories +The Company values its inventory at the lower of cost or market. Cost is determined by the LIFO method for all domestic raw materials and work-in-process inventories and certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for computer hardware and software, store furniture and fixtures, office furniture and machinery and equipment. Normal repairs and maintenance are expensed as incurred. +Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings and improvements, from 5 to 10 years for leasehold improvements and from 3 to 10 years for machinery, equipment and software. +Operating Leases +The Company leases its retail stores and certain distribution and office facilities under operating leases. In addition to the minimum lease payments, leases may include rent escalation clauses, contingent rental expense and lease incentives, including rent holidays and tenant improvement allowances. Rent expense is recognized on a straight-line basis over the term of the lease from the time at which the Company takes possession of the property. Landlord-provided tenant improvement allowances are recorded in other liabilities and amortized as a credit to rent expense over the term of the lease. Leasehold improvements are depreciated at the lesser of the estimated useful life or lease term, including reasonably-assured lease renewals as determined at lease inception. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. These costs are amortized into earnings through interest expense over the terms of the respective agreements. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units. Goodwill is considered impaired if the recorded value of the tangible and intangible net assets exceeds the fair value of the reporting unit. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. See Note 4 to the consolidated financial statements for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such +44 +Table of Contents +assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. See Note 16 to the consolidated financial statements for information related to long-lived assets that were determined to be impaired. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 12 to the consolidated financial statements for additional information. Beginning with fiscal 2015, the Company has elected to measure its defined benefit plan assets and obligations as of December 31 st of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2015, 2014 and 2013. +2. +NEW ACCOUNTING STANDARDS +In May 2014, Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The effective date of ASU 2014-09, after amendment by ASU 2015-14, Deferral of the Effective Date , is annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the potential impacts of the new standard on its existing revenue recognition policies and procedures. +In June 2014, FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is evaluating the potential impacts of the new standard on its existing stock-based compensation plans. +In August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires that an entity’s management evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016 and for interim periods thereafter. The Company does not expect the new standard to have a significant impact on its quarterly reporting process. +In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). In August 2015, FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”). ASU 2015-03 will require that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the debt. ASU 2015-15 allows an entity to present debt issuance costs associated with a revolving +45 +Table of Contents +line of credit arrangement as an asset, regardless of whether a balance is outstanding. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03 or ASU 2015-15. These ASU’s are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, with early adoption permitted. ASU 2015-03 will require the Company to reclassify its deferred financing costs associated with its long-term debt from other assets to long-term debt on a retrospective basis. The new standard will not affect the Company’s results of operations or cash flows. +In April 2015, FASB issued ASU 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets (“ASU 2015-04”). ASU 2015-04 allows employers with a fiscal year end that does not coincide with a calendar month end to make an accounting policy election to measure defined benefit plan assets and obligations as of the end of the month closest to their fiscal year end. The Company elected to prospectively adopt the accounting standard in the fourth quarter of fiscal 2015. Prior periods in the Company's Consolidated financial statements were not retrospectively adjusted. +In July 2015, FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires that an entity measure inventory at the lower of cost and net realizable value. This ASU does not apply to inventory measured using last-in, first-out. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company does not expect the new standard to have a significant impact on its consolidated financial position, results of operations or cash flows. +In November 2015, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"). ASU 2015-17 requires that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This ASU applies to all entities that present a classified statement of financial position. The Company early adopted ASU 2015-17 effective January 2, 2016 on a prospective basis. Adoption of this ASU resulted in a reclassification of net current deferred tax asset to the net non-current deferred tax asset in the Consolidated balance sheet as of January 2, 2016. No prior periods were retrospectively adjusted. +In January 2016, FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"). ASU 2016-01 enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. ASU 2016-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the potential impacts of the new standard on its consolidated financial statements. +3. +EARNINGS PER SHARE +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +On July 11, 2013, the Company’s Board of Directors approved a two-for-one stock split in the form of a stock dividend that was paid on November 1, 2013 to stockholders of record on October 1, 2013. On April 24, 2014, the Company amended its Restated Certificate of Incorporation to increase the number of shares of the Company’s authorized common stock from 160,000,000 shares to 320,000,000 shares. All share and per share data in this Annual Report on Form 10-K has been presented to reflect the split. +46 +Table of Contents +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) +2015 +2014 +2013 +Numerator: +Net earnings attributable to Wolverine World Wide, Inc. +$ +122.8 +$ +133.1 +$ +100.4 +Adjustment for earnings allocated to nonvested restricted common stock +(2.8 +) +(2.9 +) +(2.3 +) +Net earnings used to calculate basic earnings per share +120.0 +130.2 +98.1 +Adjustment for earnings reallocated to nonvested restricted common stock +0.1 +0.1 +0.1 +Net earnings used to calculate diluted earnings per share +$ +120.1 +$ +130.3 +$ +98.2 +Denominator: +Weighted average shares outstanding +102.0 +101.4 +100.2 +Adjustment for nonvested restricted common stock +(3.4 +) +(3.2 +) +(3.3 +) +Shares used to calculate basic earnings per share +98.6 +98.2 +96.9 +Effect of dilutive stock options +1.4 +1.9 +2.0 +Shares used to calculate diluted earnings per share +100.0 +100.1 +98.9 +Net earnings per share: +Basic +$ +1.22 +$ +1.33 +$ +1.01 +Diluted +$ +1.20 +$ +1.30 +$ +0.99 +Options granted to purchase 2,264,711 shares of common stock in fiscal 2015, 1,116,576 shares in fiscal 2014 and 449,036 shares in fiscal 2013 have not been included in the denominator for the computation of diluted earnings per share for each of those fiscal years because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of January 2, 2016 or January 3, 2015 . The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +On February 12, 2014, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of up to $ 200.0 million in common stock over a four-year period. The Company repurchased $92.6 million of Company common stock during fiscal 2015 under the stock repurchase plan. The Company did not repurchase any shares of Company common stock in fiscal 2014 or fiscal 2013 under a stock repurchase program. In addition to the stock repurchase program activity, the Company acquired $ 7.7 million , $ 10.5 million and $ 0.8 million of shares in fiscal years 2015, 2014 and 2013, respectively, in connection with employee transactions related to stock incentive plans. +4. +GOODWILL AND OTHER INTANGIBLE ASSETS +The changes during fiscal years 2015 and 2014 in the carrying amount of goodwill and indefinite-lived intangibles, which comprises trademarks and trade names, is as follows: +(In millions) +Goodwill +Indefinite-lived intangibles +Total +Balance at December 28, 2013 +$ +445.3 +$ +690.5 +$ +1,135.8 +Foreign currency translation effects +(6.5 +) +— +(6.5 +) +Balance at January 3, 2015 +$ +438.8 +$ +690.5 +$ +1,129.3 +Impairment +— +(5.1 +) +(5.1 +) +Foreign currency translation effects +(9.7 +) +— +(9.7 +) +Balance at January 2, 2016 +$ +429.1 +$ +685.4 +$ +1,114.5 +In the second quarter of fiscal 2015, the Company recorded a $ 2.6 million impairment charge for the Cushe ® trade name, due to the decision to wind-down operations of the Cushe ® brand. In the fourth quarter of fiscal 2015, as a result of its annual impairment testing, the Company recorded a $ 2.5 million impairment charge for the Stride Rite ® trade name. +47 +Table of Contents +In addition, the results of our indefinite-lived intangible impairment test based on the Company's outlook for future operating results have given rise to a reduction in the excess of fair value over the carrying value for the Stride Rite ® and Sperry ® trade name indefinite-lived intangible assets. If the operating results continue to decline, the Company may record a non-cash indefinite-lived intangible asset impairment charge in future periods. The carrying value of the Company’s Stride Rite ® and Sperry ® trade name indefinite-lived intangible assets was $ 15.0 million and $ 586.8 million , respectively, as of January 2, 2016. +The Company did not recognize any impairment charges for goodwill during fiscal 2015 or for goodwill or indefinite-lived intangible assets during the fiscal years 2014 or 2013, as the annual impairment testing indicated that all reporting unit goodwill and indefinite-lived intangible asset fair values exceeded their respective carrying values. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. They consist primarily of customer relationships, licensing arrangements and developed product technology. The combined gross carrying value and accumulated amortization for these amortizable intangibles is as follows: +January 2, 2016 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +17 +$ +100.5 +$ +16.7 +$ +83.8 +Licensing arrangements +1 +28.8 +22.0 +6.8 +Developed product technology +2 +14.9 +9.8 +5.1 +Other +3 +11.2 +9.6 +1.6 +Total +$ +155.4 +$ +58.1 +$ +97.3 +January 3, 2015 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +17 +$ +100.5 +$ +11.5 +$ +89.0 +Licensing arrangements +2 +28.8 +15.2 +13.6 +Developed product technology +3 +14.9 +6.8 +8.1 +Other +2 +10.4 +9.0 +1.4 +Total +$ +154.6 +$ +42.5 +$ +112.1 +Amortization expense for other intangible assets was $ 15.6 million , $ 15.7 million and $ 18.4 million for fiscal years 2015 , 2014 and 2013 , respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to January 2, 2016 is as follows: +(In millions) +2016 +2017 +2018 +2019 +2020 +Amortization expense +$ +14.0 +$ +8.9 +$ +5.3 +$ +5.1 +$ +5.1 +5. +ACCOUNTS RECEIVABLE +The Company has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis that expires in 2017. Under the agreement, up to $ 200.0 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheet, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability at January 2, 2016 and January 3, 2015 . For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. As of January 2, 2016 and January 3, 2015 , this program had reduced the Company's accounts receivable by $ 77.6 million and $ 60.9 million , respectively. The Company sold a total of $ 657.4 million and $ 72.8 million of accounts receivable at their stated amounts, less a $ 1.4 million and $ 0.1 million fee charged by the financial institution, during fiscal years 2015 and 2014, respectively. The fee is recorded in other expense. Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows. +48 +Table of Contents +6. +INVENTORIES +The Company used the LIFO method to value inventories of $ 78.7 million at January 2, 2016 and $ 62.5 million at January 3, 2015 . If the FIFO method had been used, inventories would have been $ 27.0 million and $ 25.1 million higher than reported at January 2, 2016 and January 3, 2015 , respectively. +7. +DEBT +Total debt consists of the following obligations: +(In millions) +January 2, +2016 +January 3, +2015 +Term Loan A Facility, due July 13, 2020 +$ +444.4 +$ +525.2 +Public Bonds, 6.125% interest, due October 15, 2020 +375.0 +375.0 +Capital lease obligation +0.6 +0.6 +Total debt +$ +820.0 +$ +900.8 +On July 13, 2015, the Company amended its credit agreement (as amended, the "Credit Agreement"). The amendment replaced the previous term loan facility and revolving credit facility with a new $ 450.0 million Term Loan A Facility and a new $ 500.0 million Revolving Credit Facility, and extended the maturity date of these facilities to July 13, 2020. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,425.0 million , unless certain specified conditions set forth in the Credit Agreement are met. The Company incurred $1.6 million of debt extinguishment costs during the third quarter of fiscal 2015 in connection with the refinancing. These costs represent a write-off of previously capitalized deferred financing fees. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $500.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Credit Facility of $ 3.8 million and $ 3.6 million as of January 2, 2016 and January 3, 2015 , respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +The interest rates applicable to amounts outstanding under the Term Loan A Facility and to U.S. dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.25% to 1.00% , or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.25% to 2.00% (all capitalized terms used in this sentence are as defined in the Credit Agreement). The Company has two interest rate swap arrangements that reduce the Company’s exposure to fluctuations in interest rates on its variable rate debt. At January 2, 2016 , Term Loan A had a weighted-average interest rate of 2.16 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Credit Agreement also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Credit Agreement requires compliance with the following financial covenants: a maximum Consolidated Leverage Ratio; a maximum Consolidated Secured Leverage Ratio; and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Credit Agreement). As of January 2, 2016 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $ 375.0 million of senior notes outstanding that may be traded in the public market (the “Public Bonds”) that are due on October 15, 2020. The Public Bonds bear interest at 6.125% with the related interest payments due semi-annually. The Public Bonds are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company has a $ 5.0 million (or the equivalent amount in Chinese renminbi) revolving line of credit facility that is uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender. There were no borrowings against this facility for all periods presented. +49 +Table of Contents +The Company has a capital lease obligation with payments scheduled to continue through February 2022. +The Company included in interest expense the amortization of deferred financing costs of approximately $ 3.7 million , $ 4.2 million and $ 6.1 million in fiscal years 2015, 2014 and 2013, respectively. +Annual maturities of debt for the fiscal years subsequent to January 2, 2016 are as follows: +(In millions) +2016 +2017 +2018 +2019 +2020 +Thereafter +Annual maturities of debt +$ +16.9 +$ +28.2 +$ +28.2 +$ +45.1 +$ +701.5 +$ +0.1 +8. +ACCUMLATED OTHER COMPREHENSIVE INCOME (LOSS) +Comprehensive income (loss) represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +The change in accumulated other comprehensive income (loss) during fiscal years 2015 and 2014 is as follows: +(In millions) +Foreign +currency +translation +adjustments +Foreign +exchange +contracts +Interest +rate +swap +Pension +adjustments +Total +Balance of accumulated other comprehensive income (loss) as of December 28, 2013 +$ +0.5 +$ +(0.8 +) +$ +0.6 +$ +(9.5 +) +$ +(9.2 +) +Other comprehensive income (loss) before reclassifications (1) +(17.4 +) +9.1 +(0.2 +) +(36.3 +) +(44.8 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +0.5 +(2) +— +6.5 +(3) +7.0 +Income tax expense (benefit) +— +(0.2 +) +— +(2.3 +) +(2.5 +) +Net reclassifications +— +0.3 +— +4.2 +4.5 +Net current-period other comprehensive income (loss) (1) +(17.4 +) +9.4 +(0.2 +) +(32.1 +) +(40.3 +) +Balance of accumulated other comprehensive income (loss) as of January 3, 2015 +$ +(16.9 +) +$ +8.6 +$ +0.4 +$ +(41.6 +) +$ +(49.5 +) +Balance of accumulated other comprehensive income (loss) as of January 3, 2015 +$ +(16.9 +) +$ +8.6 +$ +0.4 +$ +(41.6 +) +$ +(49.5 +) +Other comprehensive income (loss) before reclassifications (1) +(30.4 +) +10.8 +(4.2 +) +15.2 +(8.6 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +(19.0 +) +(2) +2.1 +20.9 +(3) +4.0 +Income tax expense (benefit) +— +6.0 +(0.7 +) +(7.3 +) +(2.0 +) +Net reclassifications +— +(13.0 +) +1.4 +13.6 +2.0 +Net current-period other comprehensive income (loss) (1) +(30.4 +) +(2.2 +) +(2.8 +) +28.8 +(6.6 +) +Balance of accumulated other comprehensive income (loss) as of January 2, 2016 +$ +(47.3 +) +$ +6.4 +$ +(2.4 +) +$ +(12.8 +) +$ +(56.1 +) +(1) +Other comprehensive income is reported net of taxes and noncontrolling interest. +(2) +Amounts reclassified are included in cost of goods sold. +(3) +Amounts reclassified are included in the computation of net pension expense (see Note 12 to the consolidated financial statements for additional details). +50 +Table of Contents +9. +PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) +January 2, +2016 +January 3, +2015 +Land +$ +4.1 +$ +4.1 +Buildings and improvements +105.6 +114.3 +Machinery and equipment +211.7 +194.9 +Software +110.1 +102.0 +Gross cost +431.5 +415.3 +Less: accumulated depreciation +299.9 +278.5 +Property, plant and equipment, net +$ +131.6 +$ +136.8 +Depreciation expense was $ 33.1 million , $ 37.6 million and $ 37.8 million for fiscal years 2015, 2014 and 2013, respectively. +The Company leases machinery, equipment and certain warehouse, office and retail store space under operating lease agreements that expire at various dates through 2031. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes and other operating expenses. +Minimum rental payments due under all non-cancelable operating leases for the fiscal years subsequent to January 2, 2016 are as follows: +(In millions) +2016 +2017 +2018 +2019 +2020 +Thereafter +Minimum rental payments +$ +53.6 +$ +45.2 +$ +39.1 +$ +34.6 +$ +31.2 +$ +128.5 +Rental expense under all operating leases, consisting primarily of minimum rentals, totaled $ 54.8 million in fiscal 2015 , $ 59.2 million in fiscal 2014 and $ 55.9 million in fiscal 2013 . +10. +FINANCIAL INSTRUMENTS AND RISK MANAGEMENT +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: +Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: +Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: +Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +The Company’s financial instruments consist of cash and cash equivalents, accounts and notes receivable, accounts payable, foreign currency forward exchange contracts, interest rate swap arrangements, borrowings under the Revolving Credit Facility and long-term debt. The carrying amount of the Company’s financial instruments is historical cost, which approximates fair value, except for the interest rate swaps and foreign currency forward exchange contracts, which are carried at fair value. The carrying value and the fair value of the Company’s long-term debt, excluding capital leases, are as follows: +(In millions) +January 2, 2016 +January 3, 2015 +Carrying value +$ +819.4 +$ +900.2 +Fair value +836.3 +928.4 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +The Company follows ASC 815, which is intended to improve transparency in financial reporting and requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These +51 +Table of Contents +foreign currency forward exchange hedge contracts extend out to a maximum of 349 days and 336 days, as of January 2, 2016 and January 3, 2015, respectively. The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency translation exposure. Foreign currency derivatives not designated as hedges are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has two interest rate swap arrangements which exchange floating rate for fixed rate interest payments over the life of the agreements without the exchange of the underlying notional amounts. These derivative instruments, which, unless otherwise terminated, will mature on October 6, 2017 and July 13, 2020 , have been designated as cash flow hedges of the debt. The notional amounts of the interest rate swap arrangements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The Company does not hold or issue financial instruments for trading purposes. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) +January 2, 2016 +January 3, 2015 +Foreign exchange contracts: +Hedge contracts +$ +192.6 +$ +141.6 +Non-hedge contracts +23.2 +— +Interest rate swaps (1) +609.7 +405.4 +(1) +Includes a forward starting interest rate swap with a notional amount of $ 288.8 million , which has an effective date of October 17, 2016 . +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) +January 2, 2016 +January 3, 2015 +Financial assets: +Foreign exchange contracts asset - hedge +$ +6.7 +$ +8.6 +Foreign exchange contracts asset - non-hedge +0.5 +— +Interest rate swap asset +0.2 +0.6 +Financial liabilities: +Interest rate swap liability +$ +3.9 +$ +— +Foreign exchange contracts asset - non-hedge +0.1 +— +The fair value of the foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. Hedge effectiveness is evaluated by the hypothetical derivative method. Any hedge ineffectiveness is reported within the Cost of goods sold line item in the consolidated statements of operations. Hedge ineffectiveness was not material to the Company’s consolidated financial statements for fiscal years 2015, 2014 and 2013. If, in the future, the foreign exchange contracts are determined to be ineffective hedges or terminated before their contractual termination dates, the Company would be required to reclassify into earnings all or a portion of the unrealized amounts related to the cash flow hedges that are currently included in accumulated other comprehensive loss within stockholders’ equity. +The differential paid or received on the interest rate swap arrangements is recognized as interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swaps and the variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the hedges’ inception, and continues to assess on an ongoing basis, whether the derivatives used in the hedging transaction are highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of accumulated other comprehensive loss and will be recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value will be immediately recognized in earnings. +11. +STOCK-BASED COMPENSATION +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC 718. The Company recognized compensation expense of $ 18.7 million , $ 25.1 million and $ 28.2 million and related income tax benefits of +52 +Table of Contents +$ 6.1 million , $ 8.4 million and $ 9.3 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2015 , 2014 and 2013 , respectively. +Stock-based compensation expense recognized in the consolidated statements of operations for fiscal years 2015 , 2014 and 2013 was based on awards ultimately expected to vest and, as such, was reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. +As of January 2, 2016 , the Company had approximately 4,780,457 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance. Each option or stock appreciation right granted counts as 1.0 stock incentive unit and all other awards granted, including restricted stock, count as 2.6 stock incentive units. Options granted under each plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . Restricted stock issued under these plans is subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment or upon failure to achieve performance criteria in certain instances. These restrictions typically lapse over a three- to five-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted share awards provide for accelerated vesting under various scenarios, including retirement and upon a change in control of the Company. With regard to acceleration of vesting upon retirement, employees of eligible retirement age are vested in accordance with plan provisions and applicable stock option and restricted stock agreements. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued, shares or treasury shares. +The Board of Directors awards an annual grant of performance share awards to certain plan participants. The number of performance-based shares that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the performance shares that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of shares to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $6.35 , $6.20 and $5.24 per share for fiscal years 2015 , 2014 and 2013 , respectively, with the following weighted-average assumptions. +Fiscal Year +2015 +2014 +2013 +Expected market price volatility (1) +28.8 +% +29.6 +% +33.2 +% +Risk-free interest rate (2) +1.3 +% +1.2 +% +0.6 +% +Dividend yield (3) +0.9 +% +0.9 +% +1.2 +% +Expected term (4) +4 years +4 years +4 years +(1) +Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant. +(2) +Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. +(3) +Represents the Company’s estimated cash dividend yield for the expected term. +(4) +Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior. +53 +Table of Contents +A summary of the stock option transactions is as follows: +Shares Under Option +Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at December 29, 2012 +5,500,982 +$ +13.84 +5.9 +$ +34.4 +Granted +1,489,813 +21.76 +Exercised +(851,874 +) +11.46 +Cancelled +(107,680 +) +20.89 +Outstanding at December 28, 2013 +6,031,241 +$ +16.00 +6.2 +$ +104.9 +Granted +1,349,849 +27.09 +Exercised +(737,402 +) +13.15 +Cancelled +(245,695 +) +24.16 +Outstanding at January 3, 2015 +6,397,993 +$ +18.36 +6.2 +$ +68.3 +Granted +1,366,137 +28.22 +Exercised +(1,003,896 +) +14.63 +Cancelled +(387,840 +) +26.93 +Outstanding at January 2, 2016 +6,372,394 +$ +20.54 +6.1 +$ +8.6 +Estimated forfeitures +(9,708 +) +Vested or expected to vest at January 2, 2016 +6,362,686 +$ +20.53 +6.1 +$ +5.9 +Nonvested at January 2, 2016 and expected to vest +(2,021,240 +) +Exercisable at January 2, 2016 +4,341,446 +$ +17.64 +5.0 +$ +8.6 +The total pretax intrinsic value of options exercised during fiscal years 2015 , 2014 and 2013 was $14.5 million , $10.3 million and $12.8 million , respectively. As of January 2, 2016 , there was $ 4.6 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 1.2 years. As of January 3, 2015 and December 28, 2013 , there was $4.6 million and $4.3 million , respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.2 years and 1.3 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $ 16.71 as of January 2, 2016 , which would have been received by the option holders had all option holders exercised options, where the market price of the Company's stock was above the strike price ("in-the-money"), as of that date. The total number of in-the-money options exercisable as of January 2, 2016 was 1,811,921 and the weighted-average exercise price was $11.94 . As of January 3, 2015 , 4,341,758 outstanding options were exercisable and in-the-money and the weighted-average exercise price was $15.44 . +A summary of the nonvested restricted shares and units is as follows: +Restricted +Awards +Weighted- +Average +Grant Date +Fair Value +Performance +Awards +Weighted- +Average +Grant Date +Fair Value +Nonvested at December 29, 2012 +1,398,462 +$ +16.58 +779,394 +$ +18.93 +Granted +744,287 +22.18 +789,814 +21.52 +Vested +(102,724 +) +15.35 +(28,580 +) +13.62 +Forfeited +(109,600 +) +19.96 +(109,628 +) +20.99 +Nonvested at December 28, 2013 +1,930,425 +$ +18.61 +1,431,000 +$ +20.31 +Granted +689,345 +27.09 +609,335 +27.03 +Vested +(700,543 +) +16.49 +(244,625 +) +18.85 +Forfeited +(192,045 +) +22.39 +(304,940 +) +20.27 +Nonvested at January 3, 2015 +1,727,182 +$ +22.44 +1,490,770 +$ +23.30 +Granted +677,113 +27.26 +732,124 +28.62 +Vested +(398,582 +) +18.99 +(311,343 +) +20.47 +Forfeited +(279,074 +) +25.90 +(405,432 +) +24.76 +Nonvested at January 2, 2016 +1,726,639 +$ +24.57 +1,506,119 +$ +26.08 +54 +Table of Contents +As of January 2, 2016 , there was $ 17.2 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans. That cost is expected to be recognized over a weighted-average period of 1.9 years. The total fair value of shares vested during the year ended January 2, 2016 was $ 11.1 million . As of January 3, 2015 , there was $16.2 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans. That cost was expected to be recognized over a weighted-average period of 2.0 years. The total fair value of shares vested during the year ended January 3, 2015 was $19.5 million . As of December 28, 2013 , there was $13.8 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans that was expected to be recognized over a weighted-average period of 1.9 years. The total fair value of shares vested during the year ended December 28, 2013 was $2.7 million . +As of January 2, 2016 , there was $ 4.5 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under performance-based award plans. That cost is expected to be recognized over a weighted-average period of 2.0 years. The total fair value of shares vested during the year ended January 2, 2016 was $ 8.7 million . As of January 3, 2015 , there was $6.0 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under performance-based restricted stock award plans. That cost was expected to be recognized over a weighted-average period of 1.3 years. The total fair value of shares vested during the year ended January 3, 2015 was $6.6 million . As of December 28, 2013 , there was $8.0 million of unrecognized compensation expense related to nonvested share-based compensation arrangements granted under performance-based restricted stock award plans that was expected to be recognized over a weighted-average period of 1.2 years. The total fair value of shares vested during the year ended December 28, 2013 was $ 0.6 million . +12. +RETIREMENT PLANS +The Company has three non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan provides benefits based on the employee’s years of service and final average earnings. Effective January 1, 2013, the Company closed this plan to new participants. The Company’s second plan provides benefits at a fixed rate per year of service for certain employees under a collective bargaining arrangement. The Company’s third non-contributory defined benefit pension plan, which no longer accrues future benefits, covers certain eligible PLG associates. Prior to the freezing of that plan, eligible PLG participants accrued pension benefits at a fixed unit rate based on the participant’s service and/or compensation. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company for a period of time that generally extends 15 to 18 years following retirement. The Company maintains life insurance policies with a cash surrender value of $ 64.6 million at January 2, 2016 and $ 59.5 million at January 3, 2015 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for Company contributions based on earnings. The Company recognized expense for its defined contribution plans of $ 4.6 million , $ 4.7 million and $ 4.8 million in fiscal years 2015 , 2014 and 2013 , respectively. +The Company has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.5 million , $ 1.2 million and $ 1.5 million in fiscal years 2015 , 2014 and 2013 , respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 1.9 million at January 2, 2016 and $ 2.2 million at January 3, 2015 and was recognized as a deferred compensation liability on the consolidated balance sheets. +55 +Table of Contents +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2015 and 2014 : +Fiscal Year +(In millions) +2015 +2014 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ +432.9 +$ +395.4 +Service cost pertaining to benefits earned during the year +9.0 +7.2 +Interest cost on projected benefit obligations +18.5 +20.3 +Actuarial (gains) losses +(50.1 +) +66.2 +Benefits paid to plan participants +(17.5 +) +(32.2 +) +Settlements +— +(24.0 +) +Projected benefit obligations at end of the year +$ +392.8 +$ +432.9 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ +302.1 +$ +319.6 +Actual return on plan assets +(6.2 +) +32.5 +Company contributions - pension +— +3.9 +Company contributions - SERP +2.4 +2.3 +Benefits paid to plan participants +(17.5 +) +(32.2 +) +Settlements +— +(24.0 +) +Fair value of pension assets at end of the year +$ +280.8 +$ +302.1 +Funded status +$ +(112.0 +) +$ +(130.8 +) +Amounts recognized in the consolidated balance sheets: +Non-current assets +$ +1.6 +$ +1.1 +Current liabilities +(4.0 +) +(3.8 +) +Non-current liabilities +(109.6 +) +(128.1 +) +Net amount recognized +$ +(112.0 +) +$ +(130.8 +) +Amounts recognized in accumulated other comprehensive loss: +Unrecognized net actuarial loss (amounts net of tax: $(12.7) and $(41.5)) +$ +(18.2 +) +$ +(62.6 +) +Unrecognized prior service cost (amounts net of tax: $(0.1) and $(0.1)) +(0.1 +) +(0.1 +) +Net amount recognized +$ +(18.3 +) +$ +(62.7 +) +Funded status of pension plans and SERP (supplemental): +Funded status of qualified defined benefit plans and SERP +$ +(112.0 +) +$ +(130.8 +) +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations +58.4 +53.4 +Net funded status of pension plans and SERP (supplemental) +$ +(53.6 +) +$ +(77.4 +) +The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 375.5 million at January 2, 2016 and $ 412.3 million at January 3, 2015 . +56 +Table of Contents +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) +2015 +2014 +2013 +Service cost pertaining to benefits earned during the year +$ +9.0 +$ +7.2 +$ +9.0 +Interest cost on projected benefit obligations +18.5 +20.3 +18.8 +Expected return on pension assets +(20.5 +) +(22.1 +) +(21.0 +) +Net amortization loss +20.9 +7.5 +30.5 +Settlement gain +— +(1.0 +) +— +Net pension expense +$ +27.9 +$ +11.9 +$ +37.3 +Less: SERP expense +7.8 +7.6 +8.1 +Qualified defined benefit pension plans expense +$ +20.1 +$ +4.3 +$ +29.2 +The actuarial loss and prior service cost included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during 2016 is $ 4.9 million and $ 0.1 million , respectively. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2015 +2014 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +5.00% +4.37% +Rate of compensation increase - pension +4.85% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +4.37% +5.26% +Expected long-term rate of return on plan assets +7.50% +7.50% +Rate of compensation increase - pension +4.85% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five -year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and service cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of January 2, 2016 were 65 % in equity securities and 35 % in fixed income securities. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +January 2, 2016 +(In millions) +Level 1 +Level 2 +Level 3 +Total +Equity securities +$ +— +$ +169.8 +$ +— +$ +169.8 +60.5 +% +Fixed income investments +— +99.2 +0.3 +99.5 +35.4 +% +Other +— +— +11.5 +11.5 +4.1 +% +Fair value of plan assets +$ +— +$ +269.0 +$ +11.8 +$ +280.8 +100.0 +% +57 +Table of Contents +January 3, 2015 +(In millions) +Level 1 +Level 2 +Level 3 +Total +Equity securities +$ +— +$ +195.6 +$ +— +$ +195.6 +64.7 +% +Fixed income investments +— +105.9 +0.3 +106.2 +35.2 +% +Other +— +— +0.3 +0.3 +0.1 +% +Fair value of plan assets +$ +— +$ +301.5 +$ +0.6 +$ +302.1 +100.0 +% +The Company expects to contribute approximately $ 1.5 million to its qualified defined benefit pension plans and $ 3.9 million to the SERP in fiscal 2016 . +Expected benefit payments for the fiscal years subsequent to January 2, 2016 are as follows: +(In millions) +2016 +2017 +2018 +2019 +2020 +2021-2025 +Expected benefit payments +$ +20.1 +$ +20.4 +$ +20.9 +$ +21.3 +$ +22.0 +$ +119.5 +13. +INCOME TAXES +The geographic components of earnings before income taxes are as follows: +Fiscal Year +(In millions) +2015 +2014 +2013 +United States +$ +102.1 +$ +132.4 +$ +76.7 +Foreign +62.5 +49.1 +51.0 +Earnings before income taxes +$ +164.6 +$ +181.5 +$ +127.7 +The provisions for income taxes consist of the following: +Fiscal Year +(In millions) +2015 +2014 +2013 +Current expense: +Federal +$ +48.9 +$ +42.1 +$ +37.1 +State +5.2 +5.6 +2.2 +Foreign +11.6 +18.0 +15.0 +Deferred expense (credit): +Federal +(22.0 +) +(9.3 +) +(23.5 +) +State +(1.9 +) +(6.6 +) +(3.0 +) +Foreign +(0.4 +) +(2.2 +) +(1.1 +) +Income tax provision +$ +41.4 +$ +47.6 +$ +26.7 +58 +Table of Contents +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate of 35 % to earnings before income taxes is as follows: +Fiscal Year +(In millions) +2015 +2014 +2013 +Income taxes at U.S. statutory rate (35%) +$ +57.6 +$ +63.5 +$ +44.7 +State income taxes, net of federal income tax +1.8 +3.7 +0.5 +(Nontaxable earnings) non-deductible losses of foreign affiliates: +Cayman Islands +(0.4 +) +(5.5 +) +(5.4 +) +Bermuda +— +(0.4 +) +2.7 +Other +(1.9 +) +1.1 +1.7 +Tax credits +(0.4 +) +(0.7 +) +(2.2 +) +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong +(18.1 +) +(16.4 +) +(17.1 +) +Other +0.2 +3.6 +3.1 +Adjustments for uncertain tax positions +0.1 +— +(1.2 +) +Change in valuation allowance +(1.3 +) +(19.2 +) +0.1 +Change in state tax rates +(0.7 +) +(6.0 +) +(2.0 +) +Gain on intercompany sale of subsidiary stock +— +23.2 +— +Non-deductible expenses +3.5 +1.1 +0.9 +Other +1.0 +(0.4 +) +0.9 +Income tax provision +$ +41.4 +$ +47.6 +$ +26.7 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) +January 2, +2016 +January 3, +2015 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances +$ +22.1 +$ +16.6 +Deferred compensation accruals +7.9 +10.9 +Accrued pension expense +40.1 +47.2 +Stock-based compensation +20.0 +20.2 +Net operating loss, capital loss and foreign tax credit carryforward +13.9 +13.9 +Other amounts not deductible until paid +12.1 +14.2 +Other +1.3 +1.0 +Total gross deferred income tax assets +117.4 +124.0 +Less valuation allowance +(9.5 +) +(10.5 +) +Net deferred income tax assets +107.9 +113.5 +Deferred income tax liabilities: +Tax depreciation in excess of book depreciation +— +(3.8 +) +Intangible assets +(276.3 +) +(288.5 +) +Other +(6.5 +) +(10.3 +) +Total deferred income tax liabilities +(282.8 +) +(302.6 +) +Net deferred income tax liabilities +$ +(174.9 +) +$ +(189.1 +) +The valuation allowance for deferred income tax assets as of January 2, 2016 and January 3, 2015 was $ 9.5 million and $ 10.5 million , respectively. The net change in the total valuation allowance for fiscal years 2015 and 2014 was $ 1.0 million and $ 19.2 million , respectively. The valuation allowance for both years was primarily related to foreign net operating loss carryforwards, tax credit carryforwards in foreign jurisdictions and a capital loss carryforward in the U.S. that, in the judgment of management, are not more likely than not to be realized. The ultimate realization of the carryforwards depends on the generation of future taxable income in foreign jurisdictions and capital gains in the U.S. tax jurisdiction. The current year change in the valuation allowance was comprised of an increase relating to the additional foreign net operating losses and foreign tax credits of $ 2.1 million and a decrease relating to the capital loss utilization of $ 3.1 million . +59 +Table of Contents +At January 2, 2016 , the Company had foreign net operating loss carryforwards of $ 36.2 million , that have expiration periods ranging from five years to an unlimited term during which they are available to offset future foreign taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.4 million , that are available for an unlimited carryforward period to offset future foreign taxes. The Company also had a U.S. capital loss carryforward of $ 7.6 million that expires in 2016 that is available to offset future U.S. capital gain income. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) +2015 +2014 +Beginning balance +$ +8.6 +$ +8.6 +Increases related to current year tax positions +1.1 +1.7 +Decreases related to prior year positions +(0.6 +) +(1.3 +) +Decrease due to lapse of statute +(0.4 +) +(0.4 +) +Ending balance +$ +8.7 +$ +8.6 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 7.7 million as of January 2, 2016 and $7.5 million as of January 3, 2015 . The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 2.8 million as of January 2, 2016 and $ 2.4 million as of January 3, 2015 . +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be significant to the consolidated financial statements. +For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2011 . +The Company has not established a deferred tax liability on the amount of foreign unremitted earnings of $ 471.7 million at January 2, 2016 . As of January 2, 2016 , the Company had $ 194.1 million of cash and equivalents on hand, of which $ 164.2 million was held outside of the U.S. The Company intends to permanently reinvest these funds outside of the U.S., and current plans do not demonstrate a need to repatriate this cash to fund its U.S. operations. However, if these funds were repatriated, the Company would be required to accrue and pay applicable U.S. taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these unremitted earnings due to the complexity of the hypothetical calculation. +14. +LITIGATION AND CONTINGENCIES +The Company is involved in various environmental claims and other legal actions arising in the normal course of business. The environmental claims include sites where the U.S. Environmental Protection Agency has notified the Company that it is a potentially responsible party with respect to environmental remediation. These remediation claims are subject to ongoing environmental impact studies, assessment of remediation alternatives, allocation of costs between responsible parties and concurrence by regulatory authorities and have not yet advanced to a stage where the Company’s liability is fixed. However, after taking into consideration legal counsel’s evaluation of all actions and claims against the Company, it is management’s opinion that the outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +The Company is involved in routine litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment and intellectual property. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is management’s opinion that the outcome of these items will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +60 +Table of Contents +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to January 2, 2016 are as follows: +(In millions) +2016 +2017 +2018 +2019 +2020 +Thereafter +Minimum royalties +$ +2.0 +$ +1.8 +$ +1.4 +$ +1.5 +$ +1.5 +$ +— +Minimum advertising +3.1 +3.2 +3.3 +3.4 +3.5 +7.3 +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.0 million , $ 2.3 million and $ 1.7 million for fiscal years 2015, 2014 and 2013, respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales. In accordance with these agreements, the Company incurred advertising expense of $ 3.3 million , $ 4.1 million and $ 4.4 million for fiscal years 2015, 2014 and 2013, respectively. +15. +BUSINESS SEGMENTS +Through the end of fiscal 2015, the Company’s portfolio of brands was organized into the following three operating segments, which the Company determined were reportable operating segments. +• +Lifestyle Group , consisting of Sperry ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Chaco ® footwear, Cushe ® footwear and Patagonia ® footwear during fiscal 2014 and 2013; and +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Reported revenue of the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; income from a network of third-party licensees and distributors; and revenue from the Company’s mono-branded consumer-direct business. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses including acquisition-related integration costs and restructuring and impairment costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies set forth in Note 1 to the consolidated financial statements. +On February 4, 2016, the Company announced certain organizational changes impacting its operating segments structure. The Company is evaluating the impacts of these changes to its reportable operating segments which will be reflected beginning with the first quarter of fiscal 2016. +61 +Table of Contents +Company management uses various financial measures to evaluate the performance of the reportable operating segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) +2015 +2014 +2013 +Revenue: +Lifestyle Group +$ +1,004.8 +$ +1,059.3 +$ +1,086.6 +Performance Group +991.3 +990.7 +945.8 +Heritage Group +590.8 +607.0 +567.4 +Other +104.7 +104.1 +91.3 +Total +$ +2,691.6 +$ +2,761.1 +$ +2,691.1 +Operating profit (loss): +Lifestyle Group +$ +117.2 +$ +130.2 +$ +168.2 +Performance Group +194.8 +197.6 +179.8 +Heritage Group +80.7 +95.4 +85.7 +Other +3.3 +3.9 +0.2 +Corporate +(194.9 +) +(197.2 +) +(241.6 +) +Total +$ +201.1 +$ +229.9 +$ +192.3 +Depreciation and amortization expense: +Lifestyle Group +$ +7.6 +$ +7.5 +$ +6.5 +Performance Group +3.4 +3.5 +3.7 +Heritage Group +1.1 +1.1 +1.2 +Other +3.8 +4.0 +4.1 +Corporate +32.8 +37.2 +40.7 +Total +$ +48.7 +$ +53.3 +$ +56.2 +Capital expenditures: +Lifestyle Group +$ +19.1 +$ +9.1 +$ +18.3 +Performance Group +3.8 +3.6 +3.3 +Heritage Group +0.9 +0.5 +0.9 +Other +5.1 +4.3 +5.4 +Corporate +17.5 +12.5 +13.8 +Total +$ +46.4 +$ +30.0 +$ +41.7 +(In millions) +January 2, +2016 +January 3, +2015 +December 29, +2012 +Total assets: +Lifestyle Group +$ +1,361.2 +$ +1,378.8 +$ +1,431.1 +Performance Group +498.7 +485.8 +476.4 +Heritage Group +255.1 +246.4 +247.2 +Other +57.0 +52.1 +56.9 +Corporate +272.6 +341.4 +410.6 +Total +$ +2,444.6 +$ +2,504.5 +$ +2,622.2 +Goodwill: +Lifestyle Group +$ +315.2 +$ +323.8 +$ +329.0 +Performance Group +92.4 +92.5 +92.8 +Heritage Group +21.5 +22.5 +23.5 +Total +$ +429.1 +$ +438.8 +$ +445.3 +62 +Table of Contents +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) +2015 +2014 +2013 +United States +$ +1,948.9 +$ +1,990.2 +$ +1,984.8 +Foreign: +Europe, Middle East and Africa +345.3 +391.0 +362.0 +Canada +141.2 +163.0 +166.2 +Other +256.2 +216.9 +178.1 +Total from foreign territories +742.7 +770.9 +706.3 +Total revenue +$ +2,691.6 +$ +2,761.1 +$ +2,691.1 +The location of the Company’s tangible long-lived assets, which is comprised of property, plant and equipment, is as follows: +(In millions) +January 2, +2016 +January 3, +2015 +December 29, +2012 +United States +$ +117.7 +$ +126.8 +$ +136.7 +Foreign countries +13.9 +10.0 +15.2 +Total +$ +131.6 +$ +136.8 +$ +151.9 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2015, the Company sourced approximately 99% of its footwear products from third-party suppliers located primarily in the Asia Pacific region. For fiscal 2015, the remainder was produced at Company-owned manufacturing facilities in the U.S. All apparel and accessories are sourced from third-party suppliers. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +16. +RESTRUCTURING ACTIVITIES +2014 Plan +On July 9, 2014, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations (the “2014 Plan”). As a part of the 2014 Plan, the Company intends to close approximately 140 retail stores by the end of the first quarter of 2016, consolidate certain consumer-direct support functions and implement certain other organizational changes. The Company currently estimates pretax charges related to the 2014 Plan will range from $ 45.0 million to $ 48.0 million compared to the original estimate of $ 26.6 million to $ 32.0 million . The increase in estimated costs is driven by the Company's expansion of the Plan to further consolidate its international operations and higher retail store exit costs. The Company estimates it will record the remaining charges through the first quarter of fiscal 2016 as it executes the remaining components of the 2014 Plan. Approximately $ 16.0 million to $ 18.0 million of this estimate represents non-cash charges. Once fully implemented, the Company expects annual pretax benefits of approximately $ 16.0 million as a result of the 2014 Plan. +The Company closed 58 retail stores in connection with the 2014 Plan during fiscal 2014 and 46 retail stores during fiscal 2015. The balance of the estimated 140 total store closures is expected to occur during the first quarter of fiscal 2016. +63 +Table of Contents +Costs incurred related to the 2014 Plan have been recorded within the Corporate category. The cumulative costs incurred is $ 38.5 million , with $ 3.0 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 35.5 million recorded in the restructuring and impairment costs line item as a component of operating expenses. The following is a summary of the activity during fiscal 2015 and 2014, with respect to a reserve established by the Company in connection with the 2014 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at December 28, 2013 +$ +— +$ +— +$ +— +$ +— +Restructuring costs +2.6 +5.5 +13.1 +21.2 +Amounts paid +(1.6 +) +— +(3.4 +) +(5.0 +) +Charges against assets +— +(5.5 +) +(3.2 +) +(8.7 +) +Balance at January 3, 2015 +$ +1.0 +$ +— +$ +6.5 +$ +7.5 +Restructuring costs +2.9 +5.4 +9.0 +17.3 +Amounts paid +(1.8 +) +— +(7.2 +) +(9.0 +) +Charges against assets +— +(5.4 +) +(1.8 +) +(7.2 +) +Balance at January 2, 2016 +$ +2.1 +$ +— +$ +6.5 +$ +8.6 +2013 Plan +On October 4, 2013, the Board of Directors of the Company approved a plan to restructure the Company’s Dominican Republic manufacturing operations in a manner intended to lower the Company’s cost of goods sold, as described below (the “2013 Plan”). During the fourth quarter of fiscal 2013, the Company sold a manufacturing facility in the Dominican Republic and closed a second manufacturing facility. The Company no longer maintains any Company-owned manufacturing operations in the Dominican Republic. The Company recognized $ 7.6 million of restructuring costs in fiscal 2013 and restructuring costs of $ 1.0 million during fiscal 2014. The Company considers the 2013 Plan complete and does not expect to recognize any further costs. All costs incurred for the 2013 Plan have been recognized in the Company’s Corporate category and are included in the restructuring costs line item as a component of cost of goods sold in the consolidated statements of operations. +The following is a summary of the activity during fiscal 2014 and 2013, with respect to a reserve established by the Company in connection with the 2013 Plan, by category of costs. +(In millions) +Severance and employee related +Costs associated with exit or disposal activities +Total +Balance at December 29, 2012 +$ +— +$ +— +$ +— +Restructuring costs +1.4 +6.2 +7.6 +Amounts paid +(1.4 +) +— +(1.4 +) +Charges against assets +— +(5.7 +) +(5.7 +) +Balance at December 28, 2013 +$ +— +$ +0.5 +$ +0.5 +Restructuring costs +0.1 +0.9 +1.0 +Amounts paid +(0.1 +) +(1.2 +) +(1.3 +) +Charges against assets +— +(0.2 +) +(0.2 +) +Balance at January 3, 2015 +$ +— +$ +— +$ +— +Other Restructuring Activities +During fiscal 2015, the Company recorded restructuring and impairment costs of $ 4.2 million in connection with the Company’s decision to wind-down operations of its Cushe ® brand. These costs included $ 2.6 million related to indefinite-lived intangibles and $ 1.6 million in other restructuring costs. The Company recorded these costs within its Corporate category in the restructuring and impairment costs line item as a component of operating expenses in the consolidated statements of operations. +During the fourth quarter of fiscal 2015, the Company recorded impairment costs of $ 2.5 million related to indefinite-lived intangibles of its Stride Rite ® brand. The Company recorded these costs within its Corporate category in the restructuring and impairment costs line item as a component of operating expenses in the consolidated statements of operations. +64 +Table of Contents +During the second quarter of fiscal 2014, the Company recorded an impairment of an equity method investment and reserved certain receivables within the Company’s international operations. The impairment and asset charge were determined to be other-than-temporary and the Company recorded a non-cash charge of $ 4.8 million within its corporate category included in the restructuring and impairment costs line item as a component of operating expenses in the consolidated statements of operations. During fiscal 2015, the Company recorded additional restructuring costs of $ 2.0 million related to its international operations. +The Company recorded impairment charges of $ 11.6 million and $ 0.7 million during fiscal 2015 and 2013, respectively, related to certain consumer-direct store assets where the estimated future cash flows did not support the net book value of the store assets. These costs were recorded within its corporate category in the restructuring and impairment costs line item as a component of operating expenses in the consolidated statements of operations. +Nonrecurring Fair Value Measurements +The following is a summary of assets and impairments that were measured at fair value on a nonrecurring basis. +Fiscal 2015 +Fiscal 2014 +(In millions) +Fair Value +Impairment +Fair Value +Impairment +Property and equipment +$ +1.8 +$ +17.0 +$ +0.6 +$ +5.5 +Indefinite-lived intangibles +15.0 +5.1 +— +— +The property and equipment and indefinite-lived intangibles were valued using an income approach based on the discounted cash flows expected to be generated by the underlying assets (Level 3). See Note 10 to the consolidated financial statements for additional information on Level 3 fair value measurements. +17. +BUSINESS ACQUISITIONS +On October 9, 2012, the Company acquired all of the outstanding equity interests of PLG as well as certain other assets. Consideration paid to acquire PLG was approximately $ 1,249.5 million in cash. PLG markets casual and athletic footwear, apparel and related accessories for adults and children under well-known brand names including Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company accounted for the acquisition under the provisions of FASB ASC Topic 805, Business Combinations . The related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results for PLG are included in the Company’s consolidated results of operations beginning October 9, 2012. +For fiscal 2014, the Company incurred $ 15.2 million of acquisition-related integration costs included within selling, general and administrative expenses within the Company’s consolidated statements of operations. These costs include other purchased services ($ 1.1 million ), compensation expenses ($ 3.9 million ) and other integration costs ($ 10.2 million ). For fiscal 2013, the Company incurred $ 41.5 million of acquisition-related integration costs included within selling, general and administrative expenses within the Company’s consolidated statements of operations. These costs include compensation expenses ( $26.2 million ), other purchased services ( $10.6 million ), amortization expense related to short-lived intangible assets ( $2.4 million ) and professional and legal fees ( $2.3 million ). +17. +SUBSIDIARY GUARANTORS OF THE PUBLIC BONDS +The following tables present consolidated condensed financial information for (a) the Company (for purposes of this discussion and table, “Parent”); (b) the guarantors of the Public Bonds, which include substantially all of the domestic, 100 % owned subsidiaries of the Parent (“Subsidiary Guarantors”); and (c) the wholly- and partially-owned foreign subsidiaries of the Parent, which do not guarantee the Notes (“Non-Guarantor Subsidiaries”). Separate financial statements of the Subsidiary Guarantors are not presented because they are fully and unconditionally, jointly and severally liable under the guarantees, except for normal and customary release provisions. +65 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Operations +For the fiscal year ended January 2, 2016 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Revenue +$ +613.3 +$ +2,628.6 +$ +723.8 +$ +(1,274.1 +) +$ +2,691.6 +Cost of goods sold +458.4 +1,948.8 +375.2 +(1,145.5 +) +1,636.9 +Restructuring costs +(0.1 +) +2.8 +0.3 +— +3.0 +Gross profit +155.0 +677.0 +348.3 +(128.6 +) +1,051.7 +Selling, general and administrative expenses +127.9 +559.2 +257.5 +(128.6 +) +816.0 +Restructuring and impairment costs +3.5 +24.0 +7.1 +— +34.6 +Operating profit +23.6 +93.8 +83.7 +— +201.1 +Other expenses: +Interest expense (income), net +38.6 +0.1 +(0.5 +) +— +38.2 +Debt extinguishment costs +1.6 +— +— +— +1.6 +Other income +(1.2 +) +(1.1 +) +(1.0 +) +— +(3.3 +) +Total other expense (income) +39.0 +(1.0 +) +(1.5 +) +— +36.5 +Earnings (loss) before income taxes +(15.4 +) +94.8 +85.2 +— +164.6 +Income tax expense (benefit) +(6.3 +) +38.6 +9.1 +— +41.4 +Earnings (loss) before equity in earnings of consolidated subsidiaries +(9.1 +) +56.2 +76.1 +— +123.2 +Equity in earnings of consolidated subsidiaries +131.9 +13.6 +88.0 +(233.5 +) +— +Net earnings +122.8 +69.8 +164.1 +(233.5 +) +123.2 +Less: net earnings attributable to noncontrolling interest +— +— +0.4 +— +0.4 +Net earnings attributable to Wolverine World Wide, Inc. +$ +122.8 +$ +69.8 +$ +163.7 +$ +(233.5 +) +$ +122.8 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Comprehensive Income +For the fiscal year ended January 2, 2016 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net earnings +$ +122.8 +$ +69.8 +$ +164.1 +$ +(233.5 +) +$ +123.2 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(31.8 +) +— +(31.8 +) +31.8 +(31.8 +) +Change in fair value of foreign exchange contracts +(2.2 +) +— +(2.2 +) +2.2 +(2.2 +) +Change in fair value of interest rate swap +(2.8 +) +— +— +— +(2.8 +) +Pension adjustments +28.8 +1.2 +— +(1.2 +) +28.8 +Other comprehensive income (loss) +(8.0 +) +1.2 +(34.0 +) +32.8 +(8.0 +) +Comprehensive income +114.8 +71.0 +130.1 +(200.7 +) +115.2 +Less: comprehensive loss attributable to noncontrolling interest +(1.4 +) +— +(1.0 +) +1.4 +(1.0 +) +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +116.2 +$ +71.0 +$ +131.1 +$ +(202.1 +) +$ +116.2 +66 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Operations +For the fiscal year ended January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Revenue +$ +607.8 +$ +3,276.1 +$ +848.8 +$ +(1,971.6 +) +$ +2,761.1 +Cost of goods sold +442.9 +2,594.9 +483.5 +(1,847.5 +) +1,673.8 +Restructuring costs +0.1 +— +0.9 +— +1.0 +Gross profit +164.8 +681.2 +364.4 +(124.1 +) +1,086.3 +Selling, general and administrative expenses +126.1 +555.1 +258.1 +(124.1 +) +815.2 +Acquisition-related integration costs +6.5 +1.1 +7.6 +— +15.2 +Restructuring costs +3.0 +10.4 +12.6 +— +26.0 +Operating profit (loss) +29.2 +114.6 +86.1 +— +229.9 +Other expenses: +Interest expense (income), net +45.4 +0.1 +(0.1 +) +— +45.4 +Debt extinguishment costs +1.3 +— +— +— +1.3 +Other expense (income), net +— +(1.3 +) +3.0 +— +1.7 +Total other expense (income) +46.7 +(1.2 +) +2.9 +— +48.4 +Earnings (loss) before income taxes +(17.5 +) +115.8 +83.2 +— +181.5 +Income tax expense +0.7 +37.7 +9.2 +— +47.6 +Earnings (loss) before equity in earnings of consolidated subsidiaries +(18.2 +) +78.1 +74.0 +— +133.9 +Equity in earnings of consolidated subsidiaries +151.3 +9.4 +74.7 +(235.4 +) +— +Net earnings +133.1 +87.5 +148.7 +(235.4 +) +133.9 +Less: net earnings attributable to noncontrolling interest +— +— +0.8 +— +0.8 +Net earnings attributable to Wolverine World Wide, Inc. +$ +133.1 +$ +87.5 +$ +147.9 +$ +(235.4 +) +$ +133.1 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Comprehensive Income +For the fiscal year ended January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net earnings +$ +133.1 +$ +87.5 +$ +148.7 +$ +(235.4 +) +$ +133.9 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(17.4 +) +— +(18.5 +) +17.4 +(18.5 +) +Change in fair value of foreign exchange contracts +9.4 +— +9.4 +(9.4 +) +9.4 +Change in fair value of interest rate swap +(0.2 +) +— +— +— +(0.2 +) +Pension adjustments +(32.1 +) +(10.3 +) +— +10.3 +(32.1 +) +Other comprehensive loss +(40.3 +) +(10.3 +) +(9.1 +) +18.3 +(41.4 +) +Comprehensive income +92.8 +77.2 +139.6 +(217.1 +) +92.5 +Less: comprehensive loss attributable to noncontrolling interest +— +— +(0.3 +) +— +(0.3 +) +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +92.8 +$ +77.2 +$ +139.9 +$ +(217.1 +) +$ +92.8 +67 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Operations +For the fiscal year ended December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Revenue +$ +538.2 +$ +3,849.1 +$ +774.4 +$ +(2,470.6 +) +$ +2,691.1 +Cost of goods sold +383.8 +3,207.9 +415.4 +(2,388.1 +) +1,619.0 +Restructuring costs +0.1 +— +7.5 +— +7.6 +Gross profit +154.3 +641.2 +351.5 +(82.5 +) +1,064.5 +Selling, general and administrative expenses +139.0 +506.7 +266.8 +(82.5 +) +830.0 +Acquisition-related transaction and integration costs +16.9 +14.9 +9.7 +— +41.5 +Restructuring and impairment costs +— +— +0.7 +— +0.7 +Operating profit (loss) +(1.6 +) +119.6 +74.3 +— +192.3 +Other expenses: +Interest expense (income), net +52.1 +(0.2 +) +0.1 +— +52.0 +Debt extinguishment costs +13.1 +— +— +— +13.1 +Other expense (income), net +(3.7 +) +0.1 +3.1 +— +(0.5 +) +Total other expense (income) +61.5 +(0.1 +) +3.2 +— +64.6 +Earnings (loss) before income taxes +(63.1 +) +119.7 +71.1 +— +127.7 +Income tax expense +1.5 +19.3 +5.9 +— +26.7 +Earnings (loss) before equity in earnings of consolidated subsidiaries +(64.6 +) +100.4 +65.2 +— +101.0 +Equity in earnings of consolidated subsidiaries +165.0 +114.5 +21.7 +(301.2 +) +— +Net earnings +100.4 +214.9 +86.9 +(301.2 +) +101.0 +Less: net earnings attributable to noncontrolling interest +— +— +0.6 +— +0.6 +Net earnings attributable to Wolverine World Wide, Inc. +$ +100.4 +$ +214.9 +$ +86.3 +$ +(301.2 +) +$ +100.4 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Comprehensive Income +For the fiscal year ended December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net earnings +$ +100.4 +$ +214.9 +$ +86.9 +$ +(301.2 +) +$ +101.0 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(5.4 +) +— +(5.4 +) +5.4 +(5.4 +) +Change in fair value of foreign exchange contracts +0.9 +— +0.9 +(0.9 +) +0.9 +Change in fair value of interest rate swap +1.6 +— +— +— +1.6 +Pension adjustments +81.2 +13.1 +— +(13.1 +) +81.2 +Other comprehensive (loss) income +78.3 +13.1 +(4.5 +) +(8.6 +) +78.3 +Comprehensive income +178.7 +228.0 +82.4 +(309.8 +) +179.3 +Less comprehensive income (loss) attributable to noncontrolling interest +(0.1 +) +— +0.6 +— +0.5 +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +178.8 +$ +228.0 +$ +81.8 +$ +(309.8 +) +$ +178.8 +68 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets +As of January 2, 2016 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +ASSETS +Current assets: +Cash and cash equivalents +$ +27.2 +$ +2.6 +$ +164.3 +$ +— +$ +194.1 +Accounts receivable, net +84.8 +105.8 +108.3 +— +298.9 +Inventories: +Finished products +(0.8 +) +371.7 +77.1 +— +448.0 +Raw materials and work-in-process +0.8 +1.8 +16.0 +— +18.6 +Total inventories +— +373.5 +93.1 +— +466.6 +Prepaid expenses and other current assets +10.7 +24.9 +18.6 +— +54.2 +Total current assets +122.7 +506.8 +384.3 +— +1,013.8 +Property, plant and equipment: +Gross cost +228.4 +170.5 +32.6 +— +431.5 +Accumulated depreciation +(178.1 +) +(103.6 +) +(18.2 +) +— +(299.9 +) +Property, plant and equipment, net +50.3 +66.9 +14.4 +— +131.6 +Other assets: +Goodwill +2.7 +353.3 +73.1 +— +429.1 +Indefinite-lived intangibles +3.8 +675.3 +6.3 +— +685.4 +Amortizable intangibles, net +0.6 +96.7 +— +— +97.3 +Deferred income taxes +— +— +3.7 +— +3.7 +Deferred financing costs, net +13.8 +— +— +— +13.8 +Other +50.5 +15.6 +3.8 +— +69.9 +Intercompany accounts receivable +19.8 +3,002.0 +583.9 +(3,605.7 +) +— +Investment in affiliates +3,388.4 +854.0 +949.4 +(5,191.8 +) +— +Total other assets +3,479.6 +4,996.9 +1,620.2 +(8,797.5 +) +1,299.2 +Total assets +$ +3,652.6 +$ +5,570.6 +$ +2,018.9 +$ +(8,797.5 +) +$ +2,444.6 +69 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets - continued +As of January 2, 2016 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +37.3 +$ +98.7 +$ +63.7 +$ +— +$ +199.7 +Accrued salaries and wages +17.2 +4.3 +7.0 +— +28.5 +Other accrued liabilities +42.6 +35.6 +30.0 +— +108.2 +Current maturities of long-term debt +16.9 +— +— +— +16.9 +Total current liabilities +114.0 +138.6 +100.7 +— +353.3 +Long-term debt, less current maturities +802.5 +0.6 +— +— +803.1 +Accrued pension liabilities +91.2 +18.4 +— +— +109.6 +Deferred income taxes +(75.2 +) +249.8 +4.0 +— +178.6 +Other liabilities +17.0 +11.2 +2.1 +— +30.3 +Intercompany accounts payable +1,739.4 +1,360.0 +506.3 +(3,605.7 +) +— +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity +963.7 +3,792.0 +1,399.8 +(5,191.8 +) +963.7 +Noncontrolling interest +— +— +6.0 +— +6.0 +Total stockholders’ equity +963.7 +3,792.0 +1,405.8 +(5,191.8 +) +969.7 +Total liabilities and stockholders’ equity +$ +3,652.6 +$ +5,570.6 +$ +2,018.9 +$ +(8,797.5 +) +$ +2,444.6 +70 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets +As of January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +ASSETS +Current assets: +Cash and cash equivalents +$ +11.4 +$ +3.3 +$ +209.1 +$ +— +$ +223.8 +Accounts receivable, net +18.8 +181.4 +112.5 +— +312.7 +Inventories: +Finished products +59.5 +260.0 +78.6 +— +398.1 +Raw materials and work-in-process +2.1 +1.3 +12.5 +— +15.9 +Total inventories +61.6 +261.3 +91.1 +— +414.0 +Deferred income taxes +12.8 +14.0 +1.3 +— +28.1 +Prepaid expenses and other current assets +24.8 +21.4 +17.4 +— +63.6 +Total current assets +129.4 +481.4 +431.4 +— +1,042.2 +Property, plant and equipment: +Gross cost +230.7 +150.7 +33.9 +— +415.3 +Accumulated depreciation +(183.3 +) +(72.6 +) +(22.6 +) +— +(278.5 +) +Property, plant and equipment, net +47.4 +78.1 +11.3 +— +136.8 +Other assets: +Goodwill +7.9 +353.0 +77.9 +— +438.8 +Indefinite-lived intangibles +4.3 +674.9 +11.3 +— +690.5 +Amortizable intangibles, net +0.6 +111.5 +— +— +112.1 +Deferred income taxes +— +— +2.8 +— +2.8 +Deferred financing costs, net +16.5 +— +— +— +16.5 +Other +49.8 +11.9 +3.1 +— +64.8 +Intercompany accounts receivable +22.1 +2,225.4 +621.1 +(2,868.6 +) +— +Investment in affiliates +3,158.2 +608.8 +1,221.3 +(4,988.3 +) +— +Total other assets +3,259.4 +3,985.5 +1,937.5 +(7,856.9 +) +1,325.5 +Total assets +$ +3,436.2 +$ +4,545.0 +$ +2,380.2 +$ +(7,856.9 +) +$ +2,504.5 +71 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Balance Sheets - continued +As of January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +37.5 +$ +66.4 +$ +45.5 +$ +— +$ +149.4 +Accrued salaries and wages +23.2 +6.0 +6.9 +— +36.1 +Other accrued liabilities +31.6 +40.9 +36.0 +— +108.5 +Current maturities of long-term debt +46.7 +— +— +— +46.7 +Total current liabilities +139.0 +113.3 +88.4 +— +340.7 +Long-term debt, less current maturities +853.5 +0.6 +— +— +854.1 +Accrued pension liabilities +106.6 +21.5 +— +— +128.1 +Deferred income taxes +(60.7 +) +274.7 +3.0 +— +217.0 +Other liabilities +13.3 +10.6 +2.7 +— +26.6 +Intercompany accounts payable +1,451.0 +734.5 +683.1 +(2,868.6 +) +— +Stockholders’ equity: +Wolverine World Wide, Inc. stockholders’ equity +933.5 +3,389.8 +1,598.5 +(4,988.3 +) +933.5 +Noncontrolling interest +— +— +4.5 +— +4.5 +Total stockholders’ equity +933.5 +3,389.8 +1,603.0 +(4,988.3 +) +938.0 +Total liabilities and stockholders’ equity +$ +3,436.2 +$ +4,545.0 +$ +2,380.2 +$ +(7,856.9 +) +$ +2,504.5 +72 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Cash Flow +For the fiscal year ended January 2, 2016 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net cash provided by (used in) operating activities +$ +221.2 +$ +24.3 +$ +(30.0 +) +$ +— +$ +215.5 +Investing activities +Additions to property, plant and equipment +(15.9 +) +(21.1 +) +(9.4 +) +(46.4 +) +Other +0.3 +(3.9 +) +— +— +(3.6 +) +Net cash used in investing activities +(15.6 +) +(25.0 +) +(9.4 +) +— +(50.0 +) +Financing activities +Borrowings of long-term debt +450.0 +— +— +— +450.0 +Payments of long-term debt +(530.9 +) +— +— +— +(530.9 +) +Payments of debt issuance costs +(2.4 +) +— +— +— +(2.4 +) +Cash dividends paid +(24.4 +) +— +— +— +(24.4 +) +Purchase of common stock for treasury +(92.6 +) +— +— +— +(92.6 +) +Purchases of shares under employee stock plans +(7.7 +) +— +— +— +(7.7 +) +Proceeds from the exercise of stock options +13.3 +— +— +— +13.3 +Excess tax benefits from stock-based compensation +4.9 +— +— +— +4.9 +Contributions from noncontrolling interests +— +— +2.5 +— +2.5 +Net cash (used in) provided by financing activities +(189.8 +) +— +2.5 +— +(187.3 +) +Effect of foreign exchange rate changes +— +— +(7.9 +) +— +(7.9 +) +Increase (decrease) in cash and cash equivalents +15.8 +(0.7 +) +(44.8 +) +— +(29.7 +) +Cash and cash equivalents at beginning of the year +11.4 +3.3 +209.1 +— +223.8 +Cash and cash equivalents at end of the year +$ +27.2 +$ +2.6 +$ +164.3 +$ +— +$ +194.1 +73 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Cash Flow +For the fiscal year ended January 3, 2015 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net cash provided by operating activities +$ +274.1 +$ +9.1 +$ +31.4 +$ +— +$ +314.6 +Investing activities +Additions to property, plant and equipment +(7.7 +) +(19.6 +) +(2.7 +) +— +(30.0 +) +Investment in joint ventures +— +— +(1.1 +) +— +(1.1 +) +Other +(2.4 +) +(1.2 +) +(0.1 +) +— +(3.7 +) +Net cash used in investing activities +(10.1 +) +(20.8 +) +(3.9 +) +— +(34.8 +) +Financing activities +Payments of long-term debt +(249.8 +) +— +— +— +(249.8 +) +Cash dividends paid +(24.0 +) +— +— +— +(24.0 +) +Purchases of shares under employee stock plans +(10.5 +) +— +— +— +(10.5 +) +Proceeds from the exercise of stock options +7.3 +— +— +— +7.3 +Excess tax benefits from stock-based compensation +5.6 +— +— +— +5.6 +Contributions from noncontrolling interest +— +— +1.0 +— +1.0 +Net cash provided by (used in) financing activities +(271.4 +) +— +1.0 +— +(270.4 +) +Effect of foreign exchange rate changes +— +— +0.2 +— +0.2 +Increase (decrease) in cash and cash equivalents +(7.4 +) +(11.7 +) +28.7 +— +9.6 +Cash and cash equivalents at beginning of the year +18.8 +15.0 +180.4 +— +214.2 +Cash and cash equivalents at end of the year +$ +11.4 +$ +3.3 +$ +209.1 +$ +— +$ +223.8 +74 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Condensed Statements of Cash Flow +For the fiscal year ended December 28, 2013 +(In millions) +Parent +Subsidiary +Guarantors +Non-Guarantor +Subsidiaries +Eliminations +Consolidated +Net cash provided by (used in) operating activities +$ +127.1 +$ +(10.0 +) +$ +85.2 +$ +— +$ +202.3 +Investing activities +Additions to property, plant and equipment +(11.9 +) +(25.0 +) +(4.8 +) +— +(41.7 +) +Proceeds from sale of property, plant and equipment +— +2.8 +— +— +2.8 +Investment in joint venture +— +— +(2.5 +) +— +(2.5 +) +Other +(2.9 +) +(1.3 +) +0.9 +— +(3.3 +) +Net cash used in investing activities +(14.8 +) +(23.5 +) +(6.4 +) +— +(44.7 +) +Financing activities +Borrowings of long-term debt +775.0 +— +— +— +775.0 +Payments of long-term debt +(875.0 +) +— +— +— +(875.0 +) +Payments of debt issuance costs +(2.3 +) +— +— +— +(2.3 +) +Cash dividends paid +(23.7 +) +— +— +— +(23.7 +) +Purchases of shares under employee stock plans +(0.8 +) +— +— +— +(0.8 +) +Proceeds from the exercise of stock options +8.6 +— +— +— +8.6 +Excess tax benefits from stock-based compensation +3.4 +— +— +— +3.4 +Contributions from noncontrolling interest +— +— +2.0 +— +2.0 +Net cash (used in) provided by financing activities +(114.8 +) +— +2.0 +— +(112.8 +) +Effect of foreign exchange rate changes +— +— +(2.0 +) +— +(2.0 +) +Increase (decrease) in cash and cash equivalents +(2.5 +) +(33.5 +) +78.8 +— +42.8 +Cash and cash equivalents at beginning of the year +21.3 +48.5 +101.6 +— +171.4 +Cash and cash equivalents at end of the year +$ +18.8 +$ +15.0 +$ +180.4 +$ +— +$ +214.2 +75 +Table of Contents +18. +QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) +The Company reports its quarterly results of operations on the basis of 12-week periods for each of the first three fiscal quarters and a 16- or 17-week period for the fiscal fourth quarter. The fourth quarter of fiscal 2015 consists of 16 weeks and the fourth quarter of fiscal 2014 consists of 17 weeks. The aggregate quarterly earnings per share amounts disclosed in the table below may not equal the annual per share amounts due to rounding and the fact that results for each quarter are calculated independently of the full fiscal year. The Company’s unaudited quarterly results of operations are as follows: +Fiscal 2015 +(In millions, except per share data) +First +Quarter +Second +Quarter +Third +Quarter +Fourth +Quarter +Revenue +$ +631.4 +$ +630.1 +$ +678.9 +$ +751.2 +Gross profit +261.4 +246.4 +271.7 +272.2 +Net earnings attributable to Wolverine World Wide, Inc. +40.1 +25.3 +45.8 +11.6 +Net earnings per share: +Basic +$ +0.40 +$ +0.25 +$ +0.45 +$ +0.12 +Diluted +0.39 +0.24 +0.44 +0.12 +Fiscal 2014 +(In millions, except per share data) +First +Quarter +Second +Quarter +Third +Quarter +Fourth +Quarter +Revenue +$ +627.6 +$ +613.5 +$ +711.1 +$ +808.9 +Gross profit +255.8 +245.7 +284.7 +300.1 +Net earnings attributable to Wolverine World Wide, Inc. +37.1 +27.5 +57.8 +10.7 +Net earnings per share: +Basic +$ +0.37 +$ +0.28 +$ +0.58 +$ +0.11 +Diluted +0.36 +0.27 +0.57 +0.10 +76 +Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders of Wolverine World Wide, Inc. +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries as of January 2, 2016 and January 3, 2015 , and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 2, 2016 . Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. +We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. +In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wolverine World Wide, Inc. and subsidiaries at January 2, 2016 and January 3, 2015 , and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 2016 , in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Wolverine World Wide, Inc.’s internal control over financial reporting as of January 2, 2016 , based on criteria established in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2016 expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +Grand Rapids, Michigan +March 1, 2016 +77 +Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders of Wolverine World Wide, Inc. +We have audited Wolverine World Wide Inc.’s internal control over financial reporting as of January 2, 2016 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Wolverine World Wide, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. +We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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. +In our opinion, Wolverine World Wide, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 2, 2016 , based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries as of January 2, 2016 and January 3, 2015 , and the related consolidated statements of operations, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended January 2, 2016 , and our report dated March 1, 2016 expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +Grand Rapids, Michigan +March 1, 2016 +78 +Table of Contents +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of January 2, 2016 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 2, 2016 . +The effectiveness of the Company’s internal control over financial reporting as of January 2, 2016 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the sixteen-week period ended January 2, 2016 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. +Other Information +None. +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine Worldwide to be held on April 21, 2016 . The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +Item 11. +Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +79 +Table of Contents +Item 14. +Principal Accounting Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +80 +Table of Contents +PART IV +Item 15. +Exhibits, Financial Statement Schedules +(a) +The following documents are filed as part of this report: +(1) +Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• +Consolidated Statements of Operations for the Fiscal Years Ended January 2, 2016 , January 3, 2015 and December 28, 2013 . +• +Consolidated Statements of Comprehensive Income for the Fiscal Years Ended January 2, 2016 , January 3, 2015 and December 28, 2013 . +• +Consolidated Balance Sheets as of January 2, 2016 and January 3, 2015 . +• +Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 2016 , January 3, 2015 and December 28, 2013 . +• +Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 2, 2016 , January 3, 2015 and December 28, 2013 . +• +Notes to the Consolidated Financial Statements. +• +Reports of Independent Registered Public Accounting Firm. +(2) +Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• +Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) +Exhibits +See the Exhibit Index included in this Form 10-K for the exhibits filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed in the Exhibit Index to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +81 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: +March 1, 2016 +By: +/s/ Blake W. Krueger +Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +March 1, 2016 +Blake W. Krueger +/s/ Michael D. Stornant +Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) +March 1, 2016 +Michael D. Stornant +*/s/ Jeffrey M. Boromisa +Director +March 1, 2016 +Jeffrey M. Boromisa +*/s/ Gina R. Boswell +Director +March 1, 2016 +Gina R. Boswell +*/s/ Roxane Divol +Director +March 1, 2016 +Roxane Divol +*/s/ William K. Gerber +Director +March 1, 2016 +William K. Gerber +*/s/ Joseph R. Gromek +Director +March 1, 2016 +Joseph R. Gromek +*/s/ David T. Kollat +Director +March 1, 2016 +David T. Kollat +*/s/ Brenda J. Lauderback +Director +March 1, 2016 +Brenda J. Lauderback +*/s/ Nicholas T. Long +Director +March 1, 2016 +Nicholas T. Long +*/s/ Timothy J. O’Donovan +Director +March 1, 2016 +Timothy J. O’Donovan +*/s/ Michael A. Volkema +Director +March 1, 2016 +Michael A. Volkema +*By: +/s/ Blake W. Krueger +Attorney-in-Fact +March 1, 2016 +Blake W. Krueger +82 +Table of Contents +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +Column A +Column B +Column C +Column D +Column E +Additions +(In millions) +Balance at +Beginning of +Period +(1) +Charged to +Costs and +Expenses +(2) +Charged to +Other +Accounts +(Describe) +Deductions +(Describe) +Balance at +End of +Period +Fiscal year ended January 2, 2016 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +20.6 +$ +20.4 +— +$ +19.2 +(A) +$ +21.8 +Allowance for sales returns +15.9 +62.6 +— +62.2 +(B) +16.3 +Allowance for cash discounts +4.5 +21.1 +— +19.3 +(C) +6.3 +Inventory valuation allowances +11.4 +16.9 +— +11.0 +(D) +17.3 +Total +$ +52.4 +$ +121.0 +— +$ +111.7 +$ +61.7 +Fiscal year ended January 3, 2015 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +18.3 +$ +34.9 +— +$ +32.6 +(A) +$ +20.6 +Allowance for sales returns +15.4 +68.9 +— +68.4 +(B) +15.9 +Allowance for cash discounts +4.1 +19.7 +— +19.3 +(C) +4.5 +Inventory valuation allowances +14.0 +14.0 +— +16.6 +(D) +11.4 +Total +$ +51.8 +$ +137.5 +— +$ +136.9 +$ +52.4 +Fiscal year ended December 28, 2013 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +10.1 +$ +21.1 +— +$ +12.9 +(A) +$ +18.3 +Allowance for sales returns +11.4 +74.6 +— +70.6 +(B) +15.4 +Allowance for cash discounts +5.2 +19.2 +— +20.3 +(C) +4.1 +Inventory valuation allowances +12.5 +11.3 +— +9.8 +(D) +14.0 +Total +$ +39.2 +$ +126.2 +— +$ +113.6 +$ +51.8 +(A) +Accounts charged off, net of recoveries. +(B) +Actual customer returns. +(C) +Discounts given to customers. +(D) +Adjustment upon disposal of related inventories. +A-1 +Table of Contents +EXHIBIT INDEX +Exhibit Number +Document +2.1 +Agreement and Plan of Merger, dated as of May 1, 2012, by and among WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Collective Brands, Inc. and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +3.1 +Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 19, 2015. +4.1 +Senior Notes Indenture, dated October 9, 2012, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +4.2 +Form of 6.125% Senior Note due 2020. Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.1 +Amended and Restated Stock Incentive Plan of 1999.* Incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.2 +Amended and Restated Stock Incentive Plan of 2001.* Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.3 +Amended and Restated Stock Incentive Plan of 2003.* Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.4 +Amended and Restated Stock Incentive Plan of 2005.* Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.5 +Amended and Restated Directors’ Stock Option Plan.* Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.6 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.7 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 20, 2012. +10.8 +Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2012. +10.9 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.10 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.10. +10.11 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.11 +10.12 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and executive officer. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.13 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.14 +Employees’ Pension Plan (Restated as amended through December 23, 2014).* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.15 +Form of Incentive Stock Option Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +10.16 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +10.17 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +10.18 +Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 17, 2006. +10.19 +Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 16, 2012. +E-1 +Table of Contents +Exhibit Number +Document +10.20 +Form of Stock Option Agreement for non-employee directors.* Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005. +10.21 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.22 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.23 +2016 Form of Restricted Stock Agreement* +10.24 +2016 Form of Non-Qualified Stock Option Agreement* +10.25 +Form of Performance Share Award Agreement (2014 - 2016 performance period).* Incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q for the fiscal quarter ended June 14, 2014. +10.26 +Form of Performance Share Award Agreement (2015 - 2017 performance period).* Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.27 +Form of Performance Share Award Agreement (2015 - 2016 performance period) for Blake W. Krueger.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.28 +Form of Performance Share Award Agreement (2016 - 2018 performance period).* +10.29 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.30 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.31 +409A Supplemental Executive Retirement Plan.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.31. +10.32 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.33 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.34 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.35 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.36 +Limited Guarantee, dated as of May 1, 2012, entered into by Wolverine World Wide, Inc. in favor of Collective Brands, Inc. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.37 +Purchase Agreement, dated as of May 1, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.38 +Interim Agreement, dated as of May 1, 2012, by and among Wolverine World Wide, Inc., WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Golden Gate Capital Opportunity Fund, L.P. and Blum Strategic Partners IV, L.P. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.39 +Separation Agreement, dated as of May 1, 2012, by and between Wolverine World Wide, Inc. and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.40 +Amendment No. 1 to Separation Agreement, dated as of October 9, 2012, by and between the Company and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.41 +Amendment No. 1 to Purchase Agreement, dated as of October 9, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended September 8, 2012. +E-2 +Table of Contents +Exhibit Number +Document +10.42 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.43 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.44 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.45 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.46 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.47 +Receivables Sales Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.48 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2016. +21 +Subsidiaries of Registrant. +23 +Consent of Ernst & Young LLP. +24 +Powers of Attorney. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101.INS +XBRL Instance Document +101.SCH +XBRL Taxonomy Extension Schema Document +101.CAL +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +XBRL Taxonomy Extension Label Linkbase Document +101.PRE +XBRL Taxonomy Extension Presentation Linkbase Document +* +Management contract or compensatory plan or arrangement. +E-3 \ No newline at end of file diff --git a/raw/filings/0000110471/2015/0000110471-16-000050/filing_metadata.csv b/raw/filings/0000110471/2015/0000110471-16-000050/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..94aa34c795b500a936114ec00a9a4c793eadfa55 --- /dev/null +++ b/raw/filings/0000110471/2015/0000110471-16-000050/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2016-03-01,2016-01-02,2016-03-01T22:11:59.000Z,0000110471-16-000050,wolverineform10-k2015.htm,FORM 10-K,19122502,1,0,https://www.sec.gov/Archives/edgar/data/110471/000011047116000050/wolverineform10-k2015.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047116000050/,2015,2015,1 diff --git a/raw/filings/0000110471/2015/0000110471-16-000050/item1.txt b/raw/filings/0000110471/2015/0000110471-16-000050/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..92bb21543db736a346c914fb99a0851356472f94 --- /dev/null +++ b/raw/filings/0000110471/2015/0000110471-16-000050/item1.txt @@ -0,0 +1,101 @@ +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Soft Style ® , Sperry ® , Stride Rite ® and Wolverine ® . The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel; Sperry ® apparel; and Stride Rite ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s brands are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +Through the end of fiscal 2015, the Company's portfolio of brands was organized into the following three operating segments, which the Company determined were reportable operating segments: +• +Lifestyle Group , consisting of Sperry ® footwear and apparel, Stride Rite ® footwear and apparel, Hush Puppies ® footwear and apparel, Keds ® footwear and apparel, and Soft Style ® footwear; +• +Performance Group , consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel and Chaco ® footwear; and +• +Heritage Group , consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Sebago ® footwear and apparel, Harley-Davidson ® footwear, and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue of the operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; royalty income from the licensing of the Company’s trademarks; revenue from distribution arrangements with third-party distributors; and revenue from the Company’s mono-branded consumer-direct businesses, including revenue from eCommerce websites. +The Company also reports "Other" and "Corporate" categories. The Other category consists of the Company’s multi-brand consumer-direct business, leather marketing operations, and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses including acquisition-related integration costs and restructuring costs. The Company’s operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. +The Company’s Global Operations Group is responsible for manufacturing, sourcing, distribution, logistics and customer support. The Company directly sells its products in the United States ("U.S."), Canada and certain countries in Europe to a wide range of customers, including department stores, national chains, catalog retailers, specialty retailers, mass merchants and internet retailers, and to governments and municipalities. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments and other operating categories and financial information by geographic area is found in Note 15 to the consolidated financial statements of the Company which are included in Item 8 of this Annual Report on Form 10-K. +4 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Lifestyle Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring A SV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Stride Rite ® : With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. Stride Rite ® is focused on delivering the best possible footwear across a range of categories for children under nine years of age. All Stride Rite ® products benefit from nearly a century of in-depth knowledge and understanding of how children walk and grow. Every new material and component is rigorously tested to ensure safety, proper fit and durability for children. Stride Rite ® sells product under its own namesake brand, as well as children's footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and select other footwear brands, through a network of Company-owned mall-based specialty retail stores and a consumer-direct website. Stride Rite ® also distributes children's footwear through better department stores, independent retailers, sporting goods chains, mall specialty retailers, internet retailers and national family footwear stores. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Keds ® : Keds ® is an authentic casual lifestyle brand with a foundation in canvas footwear. This iconic American brand was founded in 1916 with the introduction of the Champion ® sneaker. The simple and chic design ignited a style revolution, from fashion icons to the girl next door. Today, Keds ® is fueled by a passion for imagination, inspiring a new generation of girls to stay authentic, optimistic and brave. The brand targets teen girl consumers through an extensive collection of Champion ® originals, as well as a wide assortment of fashion sneakers and slip-ons. The brand’s product architecture consists of both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions. +Soft Style ® : Soft Style ® is a women’s dress and casual footwear brand, with a combination of all-day comfort, trend-right details, feminine style and great value. +2. +Performance Group +Merrell ® : Merrell ® footwear is designed to inspire and encourage participation in the outdoors. Known for quality, durability and comfort, Merrell ® uses a variety of proprietary designs and technologies to create footwear with distinctive styling, performance and comfort features for use on the trail or in town. Merrell ® footwear products offer a wide range of styles, from technical hiking and trail-inspired footwear to versatile lifestyle products for more casual outdoor adventures for men and women. Merrell ® footwear products are sold primarily through outdoor specialty retailers, sporting goods chains, department stores, internet retailers, catalog retailers, as well as Merrell ® stores and an eCommerce site. Merrell ® apparel extends the Merrell ® commitment to an active outdoor lifestyle with a versatile line of apparel built for the summit or the street. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories for men and women, including packs, bags and luggage. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing +5 +Table of Contents +to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, natural motion, race, trail and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers, as well as the Chaco ® eCommerce site. Chaco ® also features MyChacos custom designs for sandals. +3. +Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) rugged outdoor for hunting; and (iii) lifestyle and heritage. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged outdoor product lines incorporate DuraShocks ® , Wolverine iCS ® and other technologies and comfort features into products designed outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers that have active lifestyles. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to the U.S. Department of Defense and the military branches of several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Sebago ® : Established i n 1946, Sebago ® shares its New England heritage and tradition with those who inspire to make the journey with them. Sebago ® creates timeless, handcrafted dress and casual products from quality materials, all with a sense of purpose and style. The original, handsewn Classic penny loafer and Docksides ® boat shoe remain unchanged since first crafted by Sebago ® decades ago. While embracing its heritage, Sebago ® has a true passion for taking the best of the past and evolving with today's consumer in mind. Along with authentic classics, the brand also offers new, modern footwear silhouettes and apparel and accessories. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive +6 +Table of Contents +footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company also operates a multi-brand consumer-direct business and a performance leather business. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +On February 4, 2016, the Company announced certain organizational changes impacting its operating segments structure. The Company is evaluating the impacts of these changes to its reportable operating segments which will be reflected beginning with the first quarter of fiscal 2016. The operating segment structure described above is consistent with the reporting structure in effect at the end of fiscal 2015 for consistency with financial reporting for that year. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company uses a network of independent Shoemobile ® distribution outlets to distribute certain of the Company’s work and occupational footwear brands at industrial facilities. +• +The Company solicits all branches of the U.S. military and submits bids for contracts to supply specific footwear products. +In addition to its wholesale activities, the Company also operates a mono- and multi-brand consumer-direct distribution channel, as described above. +7 +Table of Contents +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2015 . +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue (and taking into consideration the 16 weeks or 17 weeks included in the Company’s fiscal fourth quarter versus the 12 weeks included in each of the first three fiscal quarters). The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal free cash flow and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Asia, as well as in Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel manufactured or sourced under the Company’s brand names. The Company’s licensees directly control the balance. A substantial majority of the units sourced or manufactured by the Company are procured from third parties, with the remainder of the manufacturing produced at a Company-owned facility. The Company sources a majority of its footwear from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. Footwear manufactured by the Company is produced at a Company-operated facility located in Michigan. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 40 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +8 +Table of Contents +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Sebago ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through December 31, 2020. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 20, 2016, the Company had an order backlog of approximately $1,032 million compared to an order backlog of approximately $1,182 million at February 21, 2015. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2016 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. The February 21, 2015 backlog contained approximately $30 million in orders that were placed earlier than normal to avoid potential shipping delays as a result of the West Coast port slow down and threatened strike, and approximately $15 million of orders related primarily to the Cushe business exit. Longer production lead times also influenced order timing in 2015. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. The Company has a significant number of major competitors for its brands of footwear and apparel. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +Compliance with foreign and domestic federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local +9 +Table of Contents +regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of January 2, 2016 , the Company had approximately 6,550 domestic and foreign production, office and sales employees. Approximately 45 employees were covered by a single union contract that expires on December 31, 2017. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2015/0000110471-16-000050/item13.txt b/raw/filings/0000110471/2015/0000110471-16-000050/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..f6f04c7d02817d78b6ed2533cd7c2abbf6a61544 --- /dev/null +++ b/raw/filings/0000110471/2015/0000110471-16-000050/item13.txt @@ -0,0 +1,5 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +79 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0000110471/2015/0000110471-16-000050/item9a.txt b/raw/filings/0000110471/2015/0000110471-16-000050/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..af0fe7291a1dbaf26273cd239839dbfd5c2aee0f --- /dev/null +++ b/raw/filings/0000110471/2015/0000110471-16-000050/item9a.txt @@ -0,0 +1,9 @@ +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of January 2, 2016 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 2, 2016 . +The effectiveness of the Company’s internal control over financial reporting as of January 2, 2016 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the sixteen-week period ended January 2, 2016 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2015/0000110471-16-000050/rp_note.txt b/raw/filings/0000110471/2015/0000110471-16-000050/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000110471/2015/0000110471-16-000050/rpt_disclosure.txt b/raw/filings/0000110471/2015/0000110471-16-000050/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..26dc1761682a9e679b9ce0cb4e1a0aed5ae4dda4 --- /dev/null +++ b/raw/filings/0000110471/2015/0000110471-16-000050/rpt_disclosure.txt @@ -0,0 +1,54 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since January 2, 2016, the Company has not engaged in any "related person" transactions with its directors, executive officers or +holders of 5% or more of Company voting securities, affiliates or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. They require the Governance +Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must +review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +any employment compensation paid to an executive officer of the Company if the Compensation Committee approved or recommended to the Board of Directors for approval such compensation; +(2) +any compensation paid to a director for service as a director of the Company; +(3) +any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another +entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%; or +(4) +any transaction in which the Related Person's interest arises solely from the ownership of the Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and proxy statement, an executive officer, director or, to the extent information regarding such nominee is being +presented in a proxy or information statement relating to the election of that nominee as a director, nominee for election as a director; +(b) +beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +immediate family member * of any of the foregoing. +* Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers- and +fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person's home (other than a tenant or employee). +The +Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar +circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested +Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. +Page 88 | +Wolverine +Worldwide +Notice +of +2017 +Annual +Meeting +of +Shareholders +and +Proxy +Statement +Table of Contents \ No newline at end of file diff --git a/raw/filings/0000110471/2016/0000110471-17-000010/filing.txt b/raw/filings/0000110471/2016/0000110471-17-000010/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..4f7980419ef3f11f845642e3baceb861dad714d2 --- /dev/null +++ b/raw/filings/0000110471/2016/0000110471-17-000010/filing.txt @@ -0,0 +1,5032 @@ +10-K +1 +wolverineform10-k2016.htm +FORM 10-K +Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31, 2016 +or +¨ +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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware +38-1185150 +State or other jurisdiction of +incorporation or organization +(I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E., +Rockford, Michigan +49351 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Securities Exchange Act: +Title of each class +Name of each exchange on which registered +Common Stock, $1 Par Value +New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 þ No ¨ +Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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. ¨ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. +Large accelerated filer þ Accelerated filer ¨ +Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 17, 2016 , the last business day of the registrant’s most recently completed second fiscal quarter: $ 1,930,843,778 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 17, 2017 : 96,727,473 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting to be held May 4, 2017 are incorporated by reference into Part III of this report. +Table of Contents +Table of Contents +PART I +Item 1. +Business +4 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +21 +Item 2. +Properties +21 +Item 3. +Legal Proceedings +21 +Item 4. +Mine Safety Disclosures +21 +Supplemental Item. +Executive Officers of the Registrant +21 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6. +Selected Financial Data +24 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +25 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +35 +Item 8. +Financial Statements and Supplementary Data +36 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +71 +Item 9A. +Controls and Procedures +71 +Item 9B. +Other Information +71 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +71 +Item 11. +Executive Compensation +71 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +71 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +73 +Item 14. +Principal Accounting Fees and Services +73 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +73 +Item 16. +Form 10-K Summary +73 +SIGNATURES +74 +Appendix A: Financial Statement Schedule +A-1 +Exhibit Index +E-1 +2 +Table of Contents +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• +changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• +the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• +the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• +the inability to effectively manage inventory levels; +• +increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• +foreign currency exchange rate fluctuations; +• +currency restrictions; +• +capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; +• +the cost and availability of raw materials, inventories, services and labor for owned and contract manufacturers; +• +labor disruptions; +• +changes in relationships with, including the loss of, significant wholesale customers; +• +the failure of the U.S. Department of Defense to exercise future purchase options or award new contracts, or the cancellation or modification of existing contracts by the U.S. Department of Defense or other military purchasers; +• +risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; +• +risks related to the expanding into new markets and complementary product categories as well as consumer-direct operations; +• +the impact of seasonality and unpredictable weather conditions; +• +changes in general economic conditions and/or the credit markets on the Company’s distributors, suppliers and retailers; +• +increase in the Company’s effective tax rates; +• +failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• +the risks of doing business in developing countries and politically or economically volatile areas; +• +the ability to secure and protect owned intellectual property or use licensed intellectual property; +• +the impact of regulation, regulatory and legal proceedings and legal compliance risks; +• +the potential breach of the Company’s databases, or those of its vendors, which contain certain personal information or payment card data; +• +problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; +• +strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, and implementing new initiatives and ventures; +• +the risk of impairment to goodwill and other acquired intangibles; +• +the success of the Company’s consumer-direct realignment initiatives; and +• +changes in future pension funding requirements and pension expenses. +These uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +3 +Table of Contents +PART I +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Sperry ® , Stride Rite ® and Wolverine ® . The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel; Sperry ® apparel; and Stride Rite ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s brands are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +During the first quarter of fiscal 2016, the Company’s portfolio of brands was realigned into the following four operating segments, which the Company has determined to be reportable operating segments. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear and Sebago ® footwear and apparel; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of Stride Rite ® footwear and apparel and the Company's multi-brand consumer-direct businesses. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue of the operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; royalty income from the licensing of the Company’s trademarks; revenue from distribution arrangements with third-party distributors; and revenue from the Company’s mono-branded consumer-direct businesses, including revenue from eCommerce websites. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and impairment costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. +The Company’s Global Operations Group is responsible for manufacturing, sourcing, distribution, logistics and customer support. The Company directly sells its products in the U.S., Canada and certain countries in Europe to a wide range of customers, including department stores, national chains, catalog retailers, specialty retailers, mass merchants and internet retailers, and to governments and municipalities. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments +4 +Table of Contents +and other operating categories and financial information by geographic area is found in Note 15 to the consolidated financial statements of the Company which are included in Item 8 of this Annual Report on Form 10-K. +The Company's operating segments and related brands are described in more detail below. +1. +Wolverine Outdoor & Lifestyle Group +Merrell ® : Merrell ® products (footwear/apparel/accessories) are created to empower amazing outdoor lives. Known for quality, durability, versatility and comfort, Merrell ® is focused on delivering gear with compelling technologies, performance features and inspired styling for use both on the trail and around town. Merrell ® footwear offers an assortment of products in strategic categories such as technical hike, trail, run, outdoor fitness, lifestyle and work for both men and women. Merrell ® footwear is sold in outdoor specialty retailers, sporting goods chains, department stores, internet and catalog retailers as well as Merrell ® stores and an eCommerce site. Merrell ® apparel and accessories extend to an active outdoor lifestyle with a versatile line of apparel built for both performance and lifestyle. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories including technical duffels and backpacks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers, as well as the Chaco ® eCommerce site. Chaco ® also features MyChacos custom designs for sandals. +Sebago ® : Established i n 1946, Sebago ® shares its New England heritage and tradition with those who inspire to make the journey with them. Sebago ® creates timeless, handcrafted dress and casual products from quality materials, all with a sense of purpose and style. The original, handsewn Classic penny loafer and Docksides ® boat shoe remain unchanged since first crafted by Sebago ® decades ago. While embracing its heritage, Sebago ® has a true passion for taking the best of the past and evolving with today's consumer in mind. Along with authentic classics, the brand also offers new, modern footwear silhouettes and apparel and accessories. +2. +Wolverine Boston Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring ASV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand +5 +Table of Contents +is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, race, trail, Life on the Run and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +Keds ® : Keds ® is an authentic casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +3. +Wolverine Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) rugged outdoor for hunting; and (iii) lifestyle and heritage. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged outdoor product lines incorporate DuraShocks ® and other technologies and comfort features into products designed for outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers that have active lifestyles. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to the U.S. Department of Defense and the military branches of several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +4. +Wolverine Multi-Brand Group +Stride Rite ® : With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. Stride Rite ® is focused on delivering the best possible footwear across a range of categories for children under nine years of age. All Stride Rite ® products benefit from nearly a century of in-depth knowledge and understanding of how children walk and grow. Every new material and component is rigorously tested to ensure safety, proper +6 +Table of Contents +fit and durability for children. Stride Rite ® sells product under its own namesake brand, as well as children's footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and select other footwear brands, through a network of Company-owned mall-based specialty retail stores and a consumer-direct website. Stride Rite ® also distributes children's footwear through better department stores, independent retailers, sporting goods chains, mall specialty retailers, internet retailers and national family footwear stores. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +Other Businesses +In addition to its reportable segments, the Company also operates a performance leather business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company uses a network of independent Shoemobile ® distribution outlets to distribute certain of the Company’s work and occupational footwear brands at industrial facilities. +• +The Company solicits all branches of the U.S. military and submits bids for contracts to supply specific footwear products. +• +The Company also operates brick and mortar retail stores and eCommerce websites. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2016 or fiscal 2015. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue (and taking into consideration the 16 weeks or 17 weeks included in the Company’s fiscal fourth quarter versus the 12 weeks included in each +7 +Table of Contents +of the first three fiscal quarters). Beginning in fiscal 2017, the Company's fiscal year will be comprised of four 13 week quarters. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal free cash flow and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Asia, as well as in Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel manufactured or sourced under the Company’s brand names. The Company’s licensees directly control the balance. A substantial majority of the units sourced or manufactured by the Company are procured from third parties, with the remainder of the manufacturing produced at a Company-owned facility. The Company sources a majority of its footwear from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. Footwear manufactured by the Company is produced at a Company-operated facility located in Michigan. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 40 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Sebago ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company +8 +Table of Contents +has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through December 31, 2020. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 11, 2017, the Company had an order backlog of approximately $980 million compared to an order backlog of approximately $1,024 million at February 13, 2016. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2017 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +Compliance with foreign and domestic federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of December 31, 2016 , the Company had approximately 5,860 domestic and foreign production, office and sales employees. Approximately 45 employees were covered by a single union contract that expires on March 31, 2018. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee +9 +Table of Contents +Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. +Risk Factors +Risks Related to the Company’s Business +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global economic conditions. Disposable income and consumer spending may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, inflation, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer spending could adversely affect demand for the Company’s products. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and consumer-direct footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own more recognized brands; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness, gaining sourcing efficiencies, and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated, associate its brands with styles that are no longer popular and decrease demand for its products. Such failures could result in reduced sales, excess inventory, trade name impairments, lower gross margin and adverse impacts on the Company’s operating results. +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +10 +Table of Contents +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, our foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. Although the Company typically has sought to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have a material adverse effect on the Company’s business and results of operations. +Significant capacity constraints, production disruptions, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. There can be no assurance that the Company will not experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products and, as a result, its operating results are dependent on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. +11 +Table of Contents +Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases pigskin hides for its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, such as the 2015 labor dispute at west coast U.S. ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have a material adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success is directly dependent on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company has been awarded a number of U.S. Department of Defense contracts that include future purchase options for Bates® footwear. The U.S. Department of Defense is not obligated to exercise these future purchase options for Bates® footwear or to solicit future footwear awards at levels consistent with historical awards or in a manner in which the Company, as a large business contractor under Small Business Administration rules, is eligible to bid. Failure by the U.S. Department of Defense to exercise purchase options or the Company’s failure to secure future U.S. Department of Defense contracts could have an adverse effect on the Company’s results of operations and financial position. +The Company’s consumer-direct operations have required, and will continue to require, a substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s consumer-direct operations, including its brick and mortar locations as well as its eCommerce and mobile channels, have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company has also made substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and employee-related costs. The success of our consumer-direct operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic, and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as damage its reputation and brands, and could materially affect the Company’s results of operations and financial position. +12 +Table of Contents +Expanding the Company’s brands into new markets and product categories and re-aligning its consumer-direct operations may be difficult and costly, and unsuccessful efforts to do so may adversely affect the Company’s brands and business. +As part of the Company’s growth strategy, it seeks to enhance the positioning of its brands, to extend its brands into complementary product categories and to expand geographically. There can be no assurance that the Company will be able to successfully implement any or all of these growth strategies, and unsuccessful efforts to do so could have an adverse effect on its results of operations and financial position. +Part of the future growth and profitability of the Company’s consumer-direct operations is significantly dependent on the Company’s ability to close underperforming stores and successfully develop its eCommerce and mobile platforms. The Company cannot be sure whether its eCommerce and mobile platforms will be successful, whether it will be able to terminate existing store leases in a cost-effective manner, or whether it will recapture lost sales from closed retail store locations through its wholesale, eCommerce or mobile businesses. The closure of stores and the failure to recapture sales from closed retail store locations could adversely impact the Company’s operations and financial position. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are highly dependent on future weather conditions and its ability to react to changes in weather conditions. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets affecting our distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could adversely impact the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact our third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet our consumers’ demands and, in turn, our results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Unfavorable findings resulting from a government audit could subject the Company to a variety of penalties and sanctions, and could negatively impact its future revenues. +The U.S. government has the right to audit the Company’s performance under the Company’s government contracts. If an audit by the U.S. government discovers improper or illegal activities, the Company could be subject to civil and criminal penalties and administrative sanctions, including termination of the Company’s contracts with the U.S. government, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with the U.S. government or any of its agencies. The Company could also suffer serious harm to its reputation if the U.S. government alleges that the Company acted in an improper or illegal manner, whether or not any such allegations have merit. If, as the result of an audit by the U.S. government or for any other reason, the Company is suspended or barred from contracting with the U.S. government generally, or any of its agencies, if the Company’s reputation or relationship with government agencies is impaired, or if the U.S. government otherwise ceases doing business with the Company or significantly decreases the amount of business it does with the Company, the Company’s revenue and profitability would decrease. The Company is also subject to customs and other audits in various jurisdictions where it operates. Negative audit findings in foreign jurisdictions similarly could have an adverse effect on the Company’s results of operations and financial position. +13 +Table of Contents +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have a material adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company does not provide for U.S. taxes on earnings it considers to be permanently reinvested in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; decreases in the amount of earnings in countries with low statutory tax rates; or if the Company repatriates foreign earnings (or if U.S. tax laws change to tax foreign earnings) for which no provision for U.S. taxes has previously been made. An increase in the Company’s effective tax rate could have a material adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. There can be no assurance that the final determination of any of these examinations will not have an adverse effect on the Company’s results of operations and financial position. +Failure of the Company’s third-party licensees and distributors to meet sales goals or to make timely payments on amounts owed to the Company could adversely affect the Company’s financial performance. +In many international markets, independent third-party licensees or distributors sell the Company’s products. Failure by the Company’s licensees or distributors to meet planned annual sales goals or to make timely payments on amounts owed to the Company could have an adverse effect on the Company’s business, results of operations and financial position. If a change in licensee or distributor becomes necessary, it may be difficult and costly to locate an acceptable substitute distributor or licensee and the Company may experience increased costs, as well as substantial disruption and a resulting loss of sales and brand equity in the market where such licensee or distributor operates. +The Company’s reputation and competitive position are dependent on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could receive negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Changes to United States tax, tariff and import/export regulations may have a negative effect on global economic conditions, financial markets and our business. +During, and following, the recent presidential election in the United States, there was discussion and commentary regarding potential significant changes to United States trade policies, treaties and tariffs, including trade policies and tariffs regarding China as well as a disallowance of tax deductions for imported merchandise or the imposition of unilateral tariffs on imported products. The Company does a significant amount of business in the Asia Pacific region. The results of the presidential election have created significant uncertainty about the future relationship between the United States and countries in the Asia Pacific region. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between these nations and the United States. Any of these factors could depress economic activity and restrict our access to suppliers or customers and have a material adverse effect on our business, financial condition and results of operations and affect our strategy in the Asia Pacific region and elsewhere around the world. +14 +Table of Contents +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 200 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts have created significant global economic and political uncertainties that may have material and adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports, and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which the Company operates could have a material adverse effect on the Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in China or any other market in which the Company operates, or in its industry. The Company sources finished footwear and apparel from companies in China, and the recent economic slowdown in China could adversely affect sales in China and consequently, the Company’s business, results of operations and financial position. +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Global capital markets could enter a period of severe disruption and instability, which could have a material adverse effect on debt and equity markets in the United States, which in turn could have a materially negative impact on the Company’s business, financial condition and results of operations. +The U.S. and global capital markets have experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may recur for a prolonged period of time or materially worsen in the future. +In addition, continuing signs of deteriorating sovereign debt conditions in numerous European countries, uncertainty arising from the June 2016 referendum vote in the United Kingdom in favor of exiting from the European Union and economic slowdown in China create uncertainty that could lead to further disruptions and instability. The Company may in the future have difficulty accessing capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels, European sovereign debt, Chinese economic slowdown or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations. +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive is dependent upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the +15 +Table of Contents +licensor of any of these license agreements could have a material adverse effect on the Company’s business, results of operations and financial position. +The Company’s inability to attract and retain executive managers and other key employees, or the loss of one or more executive managers or other key employees, could adversely affect the Company’s business. +The Company depends on its executive management and other key employees. In the footwear, apparel and consumer-direct markets, competition for key executive talent is intense and the Company’s failure to identify, attract or retain executive managers or other key employees could adversely affect its business. The Company must offer and maintain competitive compensation packages to effectively recruit and retain such individuals. Further, the loss of one or more executive managers or other key employees, or the Company’s failure to successfully implement succession planning, could adversely affect the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could substantially harm the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company strives to comply with all applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If so, the Company may suffer damage to its reputation and be subject to proceedings or actions against it by governmental entities or others. Any such proceeding or action could hurt the Company’s reputation, force it to spend significant amounts to defend its practices, distract its management, increase its costs of doing business, and result in monetary liability. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to ensure it remains in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease, its opportunities for growth may be curtailed by its compliance capabilities or reputational harm and its potential liability for security breaches may increase. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may distract the Company’s management team and require it to undertake costly and time consuming remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could result in loss of business. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +16 +Table of Contents +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be materially adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company has become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible material adverse impact on its financial condition and results of operations. While the Company maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses and would not remedy damage to its reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistic and distribution systems include computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. Therefore, its operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity is dependent on the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be materially adversely affected. +17 +Table of Contents +The Company’s business depends on effective marketing, advertising and promotional programs. +Consumer traffic and demand for our merchandise is influenced by the Company’s advertising, marketing and promotional activities, the name recognition and reputation of its brands. Although the Company uses marketing, advertising and promotional programs to attract consumers through various media, including social media, database marketing and print, our competitors may spend more or use different approaches, which could provide them with a competitive advantage. The Company’s promotional activity and other programs may not be effective, may be perceived negatively or could require increased expenditures, which could adversely impact the Company’s business, results of operations and financial position. +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company cannot provide assurance that it will be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but it may nonetheless incur material costs in the preliminary stages of such an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +Maintenance and growth of the Company’s business depends upon the availability of adequate capital. +The maintenance and growth of the Company’s business depends on the availability of adequate capital, which in turn depends in large part on cash flow generated by the Company’s business and the availability of equity and debt financing. The Company cannot provide assurance that its operations will generate positive cash flow or that it will be able to obtain equity or debt financing on acceptable terms, or at all. Further, the Company cannot provide assurance that it will be able to finance any expansion plans. +An impairment of goodwill or other acquired intangibles could have an adverse material impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized, but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could materially affect the Company’s results of operations. +There is no assurance that the Company will be able to successfully implement its restructuring plans. +On October 6, 2016, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations (the “2016 Plan”). There can be no assurance that the Company will successfully realize some or all of the estimated profitability improvements or other benefits from the 2016 Plan or the 2014 Plan, the Company's recently completed realignment plan. There is also no assurance that the Company will be able to re-invest any future cost savings generated from the 2016 Plan and 2014 Plan into other initiatives or that any such investment will improve the Company’s operations. +Changes in government regulation may increase the Company’s costs of compliance and failure to comply with government regulations or other standards may adversely affect its brands and business. +The Company’s business is affected by changes in government and regulatory policies in the U.S. and in foreign jurisdictions. New requirements relating to product safety and testing and new environmental requirements, as well as changes in tax laws, duties, tariffs and quotas, could have a negative impact on the Company’s ability to produce and market footwear at competitive prices. Failure to comply with such regulations, as well as comply with ethical, social, product, labor and environmental standards, could also jeopardize the Company’s reputation and potentially lead to various adverse consumer actions, including boycotts. Any negative publicity about these types of concerns may reduce demand for the Company’s products. Damage to the Company’s reputation or loss of consumer confidence for any of these or other reasons could adversely affect the Company’s results of operations, as well as require additional resources to rebuild its reputation and brand value. +18 +Table of Contents +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may in the course of business be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential hostile acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions that may be beneficial to the Company’s stockholders. +There are risks, including stock market volatility, inherent in owning the Company’s common stock. +The market price and volume of the Company’s common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on the Company’s results of operations and financial position, or a change in opinion in the market regarding the Company’s business prospects or other factors, many of which may be outside the Company’s immediate control. Changes in the amounts and frequency of share repurchases or dividends also could adversely affect the value of the Company’s common stock. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• +In the wholesale business, sales of footwear are dependent on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• +Wholesale customers set the delivery schedule for shipments of the Company’s products, which could cause shifts of sales between quarters. +• +Our estimated annual tax rate is based on projections of our domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• +Our earnings are also sensitive to a number of factors that are beyond the Company’s control, including manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +19 +Table of Contents +In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates are based upon their own opinions and are often different from the Company’s estimates or expectations. If the Company’s operating results are below the estimates or expectations of public market analysts and investors, the Company’s stock price could decline. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and there can be no assurance that the Company will satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +The Company’s results of operations, financial position, and cash flows, and its ability to conduct business in international markets may be affected by legal, regulatory, political, and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political, and economic risks. These include: +• +the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• +compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• +unexpected changes in regulatory requirements; and +• +new tariffs or other barriers in some international markets. +The Company is also subject to general political and economic risks in connection with our international operations, including: +• +political instability and terrorist attacks; +• +differences in business culture; +• +different laws governing relationships with employees and business partners; +• +changes in diplomatic and trade relationships; and +• +general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States or foreign countries upon the import or export of our products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition, or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have a material adverse effect on the Company’s business in the future or may require us to exit a particular market or significantly modify our current business practices. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company cannot be assured that the internal control policies and procedures currently in place will always protect it from reckless or criminal acts committed by our employees or agents. +20 +Table of Contents +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in a material adverse effect on the results of operations or financial condition. +Item 1B. +Unresolved Staff Comments +None. +Item 2. +Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 225,000 square feet in Rockford, Michigan, as well as a leased facility of approximately 164,000 square feet in Waltham, Massachusetts. The Company’s owned manufacturing operations are conducted at owned facilities in Michigan. The Company operates its distribution operations primarily through an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center in Howard City, Michigan, of approximately 460,000 square feet; a leased distribution center in Ontario, Canada, of approximately 342,000 square feet; an owned distribution center in Rockford, Michigan, of approximately 305,000 square feet; a leased distribution center in Cedar Springs, Michigan, of approximately 235,000 square feet; and a leased distribution facility of approximately 200,000 square feet in Brookville, Ohio. +The Company also leases and owns various other offices and distribution centers throughout the U.S. to meet its operational requirements. In addition, the Company operates 294 retail stores through leases with various third-party landlords in the U.S. and Canada collectively occupying approximately 671,000 square feet. +The Company conducts its international operations in Canada, the United Kingdom, China, Hong Kong and continental Europe through leased distribution centers, offices and/or showrooms. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. +Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. The Company has considered facts related to legal and regulatory matters and advice of counsel handling these matters, and does not believe the ultimate resolution of such proceedings will have a material adverse effect on the Company’s financial position, results of operations, or cash flows. +Item 4. +Mine Safety Disclosures +Not applicable. +Supplemental Item. Executive Officers of the Registrant +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of February 20, 2017. The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, they serve at the pleasure of management. +Name +Age +Positions held with the Company +Brendan M. Gibbons +41 +Senior Vice President, General Counsel and Secretary +Michael Jeppesen +57 +President, Global Operations Group and Wolverine Heritage Group +Amy M. Klimek +43 +Senior Vice President, Global Human Resources +Blake W. Krueger +63 +Chairman of the Board, Chief Executive Officer and President +Todd Spaletto +45 +President, Wolverine Outdoor & Lifestyle Group +Michael D. Stornant +50 +Senior Vice President, Chief Financial Officer and Treasurer +Richard J. Woodworth +59 +President, Wolverine Boston Group +James D. Zwiers +49 +Executive Vice President +Brendan M. Gibbons has served the Company as Senior Vice President, General Counsel and Secretary since July 2016. From April 2014 until July 2016, he served as Vice President, General Counsel and Secretary. From 2009 to October 2013, he served +21 +Table of Contents +as Senior Vice President of Legal and Corporate Affairs, General Counsel, and Secretary for Carter’s Inc., a global branded marketer of apparel for babies and young children. +Michael Jeppesen has served the Company as President, Global Operations Group since January 2012, and President, Wolverine Heritage Group since April 2016. From 2005 to 2011, he was Senior Vice President, Design and Sourcing, for Collective Brands, Inc., a wholesaler and retailer of footwear and related accessories. +Amy M. Klimek has served the Company as Senior Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. From 2006 to October 2014, she served as Director of Human Resources. +Blake W. Krueger has served the Company as Chairman since January 2010 and as Chief Executive Officer and President since April 2007. +Todd Spaletto has served the Company as President, Wolverine Outdoor & Lifestyle Group since February 2017. From February 2011 to January 2017, he was President, Americas for The North Face, Inc., a supplier of outdoor apparel, equipment and footwear. +Michael D. Stornant has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. From 2011 until January 2013, he served as Vice President and General Manager of Bates footwear. +Richard J. Woodworth has served the Company as President, Wolverine Boston Group since February 2016. From January 2016 to February 2016, he served as President, Lifestyle Group, which was realigned into the Wolverine Boston Group. From 2006 to 2015, he served as President, Saucony. +James D. Zwiers has served the Company as Executive Vice President since February 2017. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group. From January 2013 to June 2014, he served as Senior Vice President and President, Performance Group. From March 2009 until January 2013, he served as Senior Vice President and President, Outdoor Group, which was realigned into the Performance Group. +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The following table shows the high and low stock prices on the New York Stock Exchange and dividends declared by quarter for fiscal years 2016 and 2015 . The number of stockholders of record on February 17, 2017 , was 1,637. +Fiscal 2016 +Fiscal 2015 +Stock price +High +Low +High +Low +First quarter +$ +20.23 +$ +14.74 +$ +32.57 +$ +26.86 +Second quarter +20.70 +16.44 +35.20 +28.54 +Third quarter +25.54 +18.51 +29.94 +24.98 +Fourth quarter +25.31 +20.58 +27.24 +16.70 +Fiscal Year +Cash dividends declared per share +2016 +2015 +First quarter +$ +0.06 +$ +0.06 +Second quarter +0.06 +0.06 +Third quarter +0.06 +0.06 +Fourth quarter +0.06 +0.06 +A quarterly dividend of $0.06 per share was declared on February 8, 2017. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2017 . +The Company’s Credit Agreement and senior notes indenture impose certain restrictions on the Company’s ability to pay cash dividends. The Company may not pay a dividend if the Company is in default under the Credit Agreement or the indenture, or if +22 +Table of Contents +payment of the dividend would cause a default under the Credit Agreement or the indenture, including the Company’s covenant to meet prescribed leverage ratios. +See Item 12: "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for information with respect to the Company’s equity compensation plans. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +Five-Year Cumulative Total Return Summary +23 +Table of Contents +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2016 . +Issuer Purchases of Equity Securities +Period +Total Number of Shares Purchased +Average Price Paid per Share +Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs +Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (September 11, 2016 to October 8, 2016) +Common Stock Repurchase Program (1) +573,391 +$ +22.75 +573,391 +$ +277,550,228 +Employee Transactions (2) +1,182 +$ +22.71 +Period 11 (October 9, 2016 to November 5, 2016) +Common Stock Repurchase Program (1) +398,811 +$ +20.96 +398,811 +$ +269,191,271 +Employee Transactions (2) +278 +$ +22.71 +Period 12 (November 6, 2016 to December 3, 2016) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +269,191,271 +Employee Transactions (2) +12,036 +$ +24.07 +Period 13 (December 4, 2016 to December 31, 2016) +Common Stock Repurchase Program (1) +1,112,380 +$ +22.14 +1,112,380 +$ +244,561,688 +Employee Transactions (2) +7,188 +$ +23.32 +Total for Fourth Quarter ended December 31, 2016 +Common Stock Repurchase Program (1) +2,084,582 +$ +22.08 +2,084,582 +$ +244,561,688 +Employee Transactions (2) +20,684 +$ +23.71 +(1) +The Company’s Board of Directors approved a common stock repurchase program on February 11, 2014. This program, which was terminated on August 8, 2016, authorized the repurchase of up to $ 200.0 million of common stock. On August 8, 2016, the Company's Board of Directors approved a new common stock repurchase program that authorizes the repurchase of up to $ 300.0 million in common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement and senior notes indenture. +(2) +Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +Item 6. +Selected Financial Data +Five-Year Operating and Financial Summary (1) +Fiscal Year +(In millions, except per share data) +2016 +2015 +2014 +2013 +2012 (5) +Summary of Operations +Revenue +$ +2,494.6 +$ +2,691.6 +$ +2,761.1 +$ +2,691.1 +$ +1,640.8 +Net earnings attributable to Wolverine World Wide, Inc. +87.7 +122.8 +133.1 +100.4 +80.7 +Net earnings per share of common stock: +Basic net earnings (2)(3) +$ +0.90 +$ +1.22 +$ +1.33 +$ +1.01 +$ +0.84 +Diluted net earnings (2)(3) +0.89 +1.20 +1.30 +0.99 +0.81 +Cash dividends declared (3) +0.24 +0.24 +0.24 +0.24 +0.24 +Financial Position at Year-End +Total assets (4) +$ +2,431.7 +$ +2,434.4 +$ +2,491.3 +$ +2,604.4 +$ +2,579.2 +Debt (4) +820.7 +809.8 +887.6 +1,132.2 +1,214.8 +24 +Table of Contents +(1) +This summary should be read in conjunction with the consolidated financial statements and the related notes, which are included in Item 8 of this Annual Report on Form 10-K. +(2) +Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for nonvested restricted common stock. Diluted earnings per share assume the exercise of dilutive stock options and the vesting of all outstanding restricted stock and units. +(3) +All per share data has been presented to reflect the two-for-one stock split in the form of a stock dividend paid on November 1, 2013 to stockholders of record on October 1, 2013. +(4) +Total assets and Debt have been restated due to the adoption of ASU 2014-03 in fiscal 2016, which resulted in the reclassification of deferred financing costs from Deferred financing costs to Long-term debt. +(5) +Beginning October 9, 2012, the reported amounts include the operating results of the Performance + Lifestyle business of Collective Brands, Inc. ("PLG"), which the Company acquired in October 2012. +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, manufacturer and marketer of branded footwear, apparel and accessories. The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth .” The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 200 countries and territories at December 31, 2016 , including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At December 31, 2016 , the Company operated 294 retail stores in the U.S. and Canada and 56 consumer-direct websites. +2016 FINANCIAL OVERVIEW +• +Revenue for fiscal 2016 was $ 2,494.6 million , a decrease of 7.3 % compared to fiscal 2015. The decrease reflects the closure of retail stores ($34.5 million), the negative impact of foreign exchange ($17.1 million), the exit of the Cushe ® business ($14.9 million) and lower demand for products within the Company's operating groups. +• +Gross margin for fiscal 2016 was 38.5 %, a decrease of 60 basis points from fiscal 2015. The gross margin decline was driven by the negative impact of foreign exchange, store closures and a negative mix shift in international markets, which were partially offset by product cost reductions. +• +Operating expenses decreased $ 50.6 million in fiscal 2016, to $ 800.0 million . Operating expenses were favorably impacted by lower store operating costs due to store closures, lower pension expense, lower advertising costs, lower selling expenses and the impact of foreign exchange, which were partially offset by higher restructuring and impairment costs and higher incentive compensation expense. +• +The effective tax rate in fiscal 2016 was 20.8 % compared to 25.2 % in fiscal 2015. The lower effective tax rate in fiscal 2016 reflects more favorable discrete items compared to fiscal 2015. +• +Cash provided by operating activities was $296.3 million during fiscal 2016 compared to cash provided by operating activities of $ 215.5 million in fiscal 2015. +• +Inventories were 25.3% lower in fiscal 2016 compared to 2015. +• +The Company declared cash dividends of $ 0.24 per share, in both fiscal 2016 and fiscal 2015. +25 +Table of Contents +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +Percent Change vs. Prior Year +(In millions, except per share data) +2016 +2015 +2014 +2016 +2015 +Revenue +$ +2,494.6 +$ +2,691.6 +$ +2,761.1 +(7.3 +)% +(2.5 +)% +Cost of goods sold +1,526.4 +1,636.9 +1,673.8 +(6.8 +) +(2.2 +) +Restructuring costs +8.3 +3.0 +1.0 +176.7 +200.0 +Gross profit +959.9 +1,051.7 +1,086.3 +(8.7 +) +(3.2 +) +Selling, general and administrative expenses +758.0 +816.0 +815.2 +(7.1 +) +0.1 +Acquisition-related integration costs +— +— +15.2 +— +(100.0 +) +Restructuring and impairment costs +42.0 +34.6 +26.0 +21.4 +33.1 +Operating profit +159.9 +201.1 +229.9 +(20.5 +) +(12.5 +) +Interest expense, net +34.8 +38.2 +45.4 +(8.9 +) +(15.9 +) +Debt extinguishment and other costs +18.1 +1.6 +1.3 +1,031.3 +23.1 +Other expense (income), net +(3.5 +) +(3.3 +) +1.7 +6.1 +294.1 +Earnings before income taxes +110.5 +164.6 +181.5 +(32.9 +) +(9.3 +) +Income tax expense +23.0 +41.4 +47.6 +(44.4 +) +(13.0 +) +Net earnings +87.5 +123.2 +133.9 +(29.0 +) +(8.0 +) +Less: net earnings (loss) attributable to noncontrolling interest +(0.2 +) +0.4 +0.8 +(150.0 +) +(50.0 +) +Net earnings attributable to Wolverine World Wide, Inc. +$ +87.7 +$ +122.8 +$ +133.1 +(28.6 +)% +(7.7 +)% +Diluted earnings per share +$ +0.89 +$ +1.20 +$ +1.30 +(25.8 +)% +(7.7 +)% +REVENUE +Revenue was $2,494.6 million for fiscal 2016, representing a decrease of 7.3% versus the prior year's revenue of $2,691.6 million . The decrease reflects the closure of retail stores ($34.5 million), the negative impact of foreign exchange ($17.1 million), the exit of the Cushe ® business ($14.9 million) and lower demand for products within the Company's operating groups. International revenue represented 28.2 %, 27.6 % and 27.9 % of total reported revenues in fiscal years 2016, 2015 and 2014, respectively. +Revenue was $2,691.6 million for fiscal 2015, representing a decrease of 2.5% versus the prior year's revenue of $2,761.1 million. The decrease reflects the negative impact of foreign exchange ($65.6 million), the closure of retail stores ($37.9 million) and the exit of the Patagonia ® footwear business ($22.0 million), which were partially offset by revenue growth for certain brands and eCommerce within the operating groups. +GROSS MARGIN +For fiscal 2016, the Company’s gross margin was 38.5 % compared to 39.1 % in fiscal 2015. The gross margin decline was driven primarily by the negative impact of foreign exchange (70 basis points), store closures (50 basis points) and a negative mix shift in international markets (30 basis points), which were partially offset by product cost reductions. +For fiscal 2015, the Company’s gross margin was 39.1% compared to 39.3% in fiscal 2014. The gross margin decline was driven primarily by the negative impact of foreign exchange (50 basis points) and a negative mix shift in international markets (40 basis points), which were partially offset by select selling price increases and product cost reductions (40 basis points) as well as fewer inventory markdowns (30 basis points). +OPERATING EXPENSES +Operating expenses decreased $ 50.6 million in fiscal 2016, to $ 800.0 million . Operating expenses were favorably impacted by lower store operating costs ($18.0 million), lower pension expense ($17.5 million), lower advertising costs ($12.9 million), lower selling expenses ($12.5 million) and the impact of foreign exchange ($6.3 million), which were partially offset by higher restructuring and impairment costs ($7.4 million), higher incentive compensation expense ($5.1 million) and organizational transformation costs ($2.2 million). +Operating expenses decreased $5.8 million in fiscal 2015, to $850.6 million. Operating expenses were favorably impacted by foreign exchange ($19.8 million), the lack of acquisition-related integration costs associated with the integration of the PLG +26 +Table of Contents +business ($15.2 million), lower incentive compensation expenses ($13.6 million) and lower selling expenses ($6.1 million), which were partially offset by incremental brand investments ($24.3 million), higher pension expense ($16.0 million) and incremental restructuring and impairment costs ($8.6 million). +INTEREST, OTHER AND TAXES +Net interest expense was $ 34.8 million in fiscal 2016 compared to $38.2 million in fiscal 2015. The decrease was due primarily to the benefits of the Company's fiscal 2016 fourth quarter refinancing, which lowered the effective interest rate on the Company’s outstanding debt. +Net interest expense was $38.2 million in fiscal 2015 compared to $45.4 million in fiscal 2014. The decrease was due primarily to lower average principal balances on the Company’s outstanding debt. +The Company incurred $ 18.1 million of debt extinguishment and other costs during fiscal 2016 in connection with the fourth quarter refinancing of the Company's debt. Debt extinguishment costs included a $13.1 million early redemption premium to retire the Company's previously outstanding Public Bonds, $4.0 million write-off of unamortized debt issuance costs and other costs associated with the refinancing. The Company incurred $1.6 million of debt extinguishment costs during the third quarter of fiscal 2015 in connection with the refinancing of the Company's debt. The Company incurred $1.3 million of debt extinguishment costs during the fourth quarter of fiscal 2014 due to accelerating the amortization of capitalized deferred financing fees in relation to debt repayments. +The Company’s effective tax rates in fiscal 2016 and fiscal 2015 were 20.8 % and 25.2 %, respectively. The lower effective tax rate in fiscal 2016 reflects more favorable discrete items compared to fiscal 2015. +The Company’s effective tax rates in fiscal 2015 and fiscal 2014 were 25.2% and 26.2%, respectively. The lower effective tax rate in fiscal 2015 reflects a lower proportion of income generated in higher tax jurisdictions, primarily the U.S., compared to fiscal 2014, which was partially offset by fewer favorable discrete items in fiscal 2015 compared to fiscal 2014. +The Company maintains management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that are generally lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings is generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. The Company has not provided for U.S. taxes for earnings generated in foreign jurisdictions because it intends to reinvest these earnings indefinitely outside the U.S. However, if certain foreign earnings previously treated as permanently reinvested are repatriated, the additional U.S. tax liability could have a material adverse effect on the Company’s results of operations and financial position. +REPORTABLE OPERATING SEGMENTS +The Company has four reportable operating segments. The Company’s operating segments are determined on the basis of how the Company internally reports and evaluates financial information used to make operating decisions. The Company’s reportable operating segments are: +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear, Sebago ® footwear and apparel and Cushe ® footwear; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of Stride Rite ® footwear and apparel and the Company's multi-brand consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including acquisition-related transaction and integration costs and restructuring and impairment costs. +27 +Table of Contents +The reportable operating segment results for fiscal years 2016, 2015 and 2014 are as follows: +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2016 +2015 +Change +2015 +2014 +Change +REVENUE +Wolverine Outdoor & Lifestyle Group +$ +890.6 +$ +957.5 +$ +(66.9 +) +(7.0 +)% +$ +957.5 +$ +1,024.6 +$ +(67.1 +) +(6.5 +)% +Wolverine Boston Group +889.4 +942.8 +(53.4 +) +(5.7 +) +942.8 +906.1 +36.7 +4.1 +Wolverine Heritage Group +347.0 +370.5 +(23.5 +) +(6.3 +) +370.5 +369.7 +0.8 +0.2 +Wolverine Multi-Brand Group +304.3 +351.2 +(46.9 +) +(13.4 +) +351.2 +399.0 +(47.8 +) +(12.0 +) +Other +63.3 +69.6 +(6.3 +) +(9.1 +) +69.6 +61.7 +7.9 +12.8 +Total +$ +2,494.6 +$ +2,691.6 +$ +(197.0 +) +(7.3 +)% +$ +2,691.6 +$ +2,761.1 +$ +(69.5 +) +(2.5 +)% +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2016 +2015 +Change +2015 +2014 +Change +OPERATING PROFIT (LOSS) +Wolverine Outdoor & Lifestyle Group +$ +166.8 +$ +197.7 +$ +(30.9 +) +(15.6 +)% +$ +197.7 +$ +216.0 +$ +(18.3 +) +(8.5 +)% +Wolverine Boston Group +121.7 +132.9 +(11.2 +) +(8.4 +) +132.9 +132.9 +— +— +Wolverine Heritage Group +50.8 +54.6 +(3.8 +) +(7.0 +) +54.6 +59.5 +(4.9 +) +(8.2 +) +Wolverine Multi-Brand Group +4.8 +5.2 +(0.4 +) +(7.7 +) +5.2 +14.3 +(9.1 +) +(63.6 +) +Other +5.5 +5.6 +(0.1 +) +(1.8 +) +5.6 +4.4 +1.2 +27.3 +Corporate +(189.7 +) +(194.9 +) +5.2 +(2.7 +) +(194.9 +) +(197.2 +) +2.3 +1.2 +Total +$ +159.9 +$ +201.1 +$ +(41.2 +) +(20.5 +)% +$ +201.1 +$ +229.9 +$ +(28.8 +) +(12.5 +)% +Further information regarding the reportable operating segments can be found in Note 15 to the consolidated financial statements. +Wolverine Outdoor & Lifestyle Group +The Outdoor & Lifestyle Group’s revenue decreased $ 66.9 million , or 7.0 %, in fiscal 2016 compared to fiscal 2015. The decline was partially due to a high single digit revenue decline for Merrell ® , the exit of the Cushe ® business, a mid single-digit decrease for Cat ® and a high single digit revenue decline for Hush Puppies ® , which were partially offset by a mid-twenties increase for Chaco ® . The Merrell ® decrease was due to lower demand in the U.S. reflecting continued challenges in the retail environment, customer bankruptcies, the strategic decision to exit the apparel wholesale channel and the negative impact of foreign exchange. This was partially offset by a low thirties growth rate for eCommerce. The Cat ® decline was due to lower demand in the U.S. and EMEA due to a soft retail market, declines in the oil industry and changes in foreign exchange rates which were partially offset by growth in Latin America. The Hush Puppies ® decrease was due to challenging trading conditions in Europe and the negative impact of foreign exchange rate changes. The Chaco ® increase was driven by growth in the brand's sandal products within the U.S. market. +The Outdoor & Lifestyle Group’s operating profit decreased $ 30.9 million , or 15.6 %, in fiscal 2016 compared to fiscal 2015. The operating profit decrease was due primarily to the revenue and gross margin decreases for Merrell ® and Cat ® . The gross margin decreases were due to unfavorable foreign currency forward contracts. These decreases were partially offset by the revenue increase from Chaco ® and higher gross margin from Chaco ® due to more favorable product costs and fewer closeout sales. +The Outdoor & Lifestyle Group’s revenue decreased $ 67.1 million , or 6.5 %, in fiscal 2015 compared to fiscal 2014. The decline was due to a low twenties decline for Hush Puppies ® , a mid single-digit decline from Merrell ® , a mid single-digit decline from Cat ® , a high teen decline from Sebago ® and the exit of the Patagonia ® footwear license, which were partially offset by growth in the low fifties from Chaco ® . The Hush Puppies ® decline was due to strategic reductions in the U.S. department store channel and the decrease from Merrell ® was driven by the negative impact of foreign exchange. The Cat ® decrease resulted from the negative impact of foreign exchange, while the Sebago ® decline was due to the negative impact of foreign exchange and higher inventory levels at key retail partners. The Chaco ® increase was due to increased demand for its core sandal product. +The Outdoor & Lifestyle Group’s operating profit decreased $ 18.3 million , or 8.5 %, in fiscal 2015 compared to fiscal 2014. The operating profit decrease was due primarily to the revenue decreases for Merrell ® , Cat ® and Patagonia ® and gross margin decreases from Merrell ® and Cat ® . These decreases were partially offset by the revenue increase from Chaco ® and higher a gross margin +28 +Table of Contents +from Chaco ® due to fewer close-out sales. The gross margin decrease from Merrell ® was due to unfavorable foreign currency forward contracts. The lower gross margin for Cat ® was due to a negative mix shift in international markets and higher domestic closeout sales. +Wolverine Boston Group +The Boston Group’s revenue decreased $ 53.4 million , or 5.7 %, in fiscal 2016 compared to fiscal 2015. The decline was driven by a high single-digit decline from Sperry ® and a mid single-digit decline from Saucony ® . The Sperry ® decrease was due to lower wholesale demand for its core boat products, partially offset by growth in the boot product category. The Saucony ® decrease was due to challenges within the U.S. wholesale business including lower demand for products, certain customer bankruptcies and the unfavorable impact of changes in foreign currency exchange rates. This was partially offset by high single-digit growth in EMEA. +The Boston Group’s operating profit decreased $ 11.2 million , or 8.4 %, in fiscal 2016 compared to fiscal 2015. The decrease was due primarily to the revenue declines and lower gross margin for Saucony ® due to negative foreign exchange impact and product mix, partially offset by higher operating profit from Keds ® due to lower advertising spend. +The Boston Group’s revenue increased $ 36.7 million , or 4.1 %, in fiscal 2015 compared to fiscal 2014. The growth was driven by high single-digit growth from Saucony ® and by low single-digit revenue increases for Sperry ® and Keds ® . The Saucony ® increase was due to growth in its lifestyle oriented Originals product and Technical Running product, partially offset by the negative impact from foreign exchange. The Keds ® increase was driven by growth in the Asia Pacific region due to new distributor arrangements. The Sperry ® increase was a result of strong eCommerce revenue growth and new retail stores. +The Boston Group’s operating profit was flat in fiscal 2015 compared to fiscal 2014. Saucony ® drove higher operating profit due to the increased revenues, which were partially offset by lower gross margins due to unfavorable foreign currency forward contracts. This was offset by lower operating profit for Sperry ® due to higher advertising costs, partially offset by higher gross margin due to higher selling prices and favorable product mix. +Wolverine Heritage Group +The Heritage Group’s revenue decreased $ 23.5 million , or 6.3 %, in fiscal 2016 compared to fiscal 2015. The revenue decline was the result of a low-teens decline from Wolverine ® , a mid-teens decline from Harley Davidson ® , partially offset by mid-teens growth from Bates ® . The Wolverine ® decline was due to lower demand in the U.S. due to a soft retail market and declines in the oil industry. The Harley Davidson ® decline was due to sluggish motorcycle sales in the U.S., which negatively impacted the Harley Davidson ® dealer network. The Bates ® increase was driven by increases in its domestic contract business. +The Heritage Group’s operating profit decreased $ 3.8 million , or 7.0 %, in fiscal 2016 compared to fiscal 2015. The operating profit decrease was due primarily to the revenue decreases within the group. +The Heritage Group’s revenue increased $ 0.8 million , or 0.2 %, in fiscal 2015 compared to fiscal 2014. The slight revenue increase was the result of mid single-digit growth from Bates ® , partially offset by a low single-digit decline from Wolverine ® . The Bates ® increase was driven by increases in its domestic contract business. The Wolverine ® decline was due primarily to unseasonably warm winter weather and higher inventory levels at key retail partners in the second half of fiscal 2015. +The Heritage Group’s operating profit decreased $ 4.9 million , or 8.2 %, in fiscal 2015 compared to fiscal 2014. The operating profit decrease was due primarily to the revenue decrease for Wolverine ® . +Wolverine Multi-Brand Group +The Multi-Brand Group’s revenue decreased $ 46.9 million , or 13.4 %, in fiscal 2016 compared to fiscal 2015. The revenue decline was due to Stride Rite ® store closures and lower Stride Rite ® U.S. wholesale revenues. The Multi-Brand Group’s operating profit decreased $ 0.4 million , or 7.7 %, in fiscal 2016 compared to fiscal 2015. +The Multi-Brand Group revenue decreased $ 47.8 million , or 12.0 %, in fiscal 2015 compared to fiscal 2014. The decrease was due a low teens revenue decline for Stride Rite ® due to the planned closure of retail stores. The Multi-Brand Group’s operating profit decreased $ 9.1 million , or 63.6 %, in fiscal 2015 compared to fiscal 2014. The decrease was due lower revenue for Stride Rite ® and lower gross margins resulting from retail store close-out activities. +Corporate +Corporate expenses decreased $5.2 million in fiscal 2016 compared to fiscal 2015. Corporate expenses were favorably impacted by lower pension expense ($17.5 million), which were partially offset by higher restructuring and impairment costs ($7.4 million), higher incentive compensation expense ($5.1 million) and organizational transformation costs ($2.2 million). +29 +Table of Contents +Corporate expenses decreased $ 2.3 million in fiscal 2015 compared to fiscal 2014. Corporate expenses were favorably impacted by the lack of acquisition-related integration costs associated with the integration of the PLG business ($15.2 million) and lower incentive compensation expenses ($13.6 million), which were partially offset by higher pension expense ($16.0 million) and incremental restructuring and impairment costs ($10.6 million). +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) +2016 +2015 +2014 +Cash and cash equivalents +$ +369.8 +$ +194.1 +$ +223.8 +Debt +820.7 +809.8 +887.6 +Available revolving credit facility (1) +597.4 +496.2 +196.4 +Cash provided by operating activities +296.3 +215.5 +314.6 +Cash used in investing activities +(38.4 +) +(50.0 +) +(34.8 +) +Cash used in financing activities +(79.5 +) +(187.3 +) +(270.4 +) +Additions to property, plant and equipment +55.3 +46.4 +30.0 +Depreciation and amortization +43.5 +48.7 +53.3 +(1) +Amounts are net of both borrowings and outstanding standby letters of credit in accordance with the terms of the revolving credit facility. +Liquidity +Cash and cash equivalents of $ 369.8 million as of December 31, 2016 were $175.7 million higher compared to January 2, 2016. The Company had $ 597.4 million available under a revolving credit agreement (the “Revolving Credit Facility”) as of December 31, 2016 . +At December 31, 2016 , the Company had $ 227.8 million of cash and cash equivalents located in foreign jurisdictions, in which the Company intends to permanently reinvest these funds. The Company had outstanding standby letters of credit under the Revolving Credit Facility of $2.6 million at December 31, 2016 . +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during fiscal 2016 was higher compared to fiscal 2015 due primarily to improvements in working capital balances compared to fiscal 2015, partially offset by lower earnings performance. During fiscal 2016 working capital balances drove a source of cash of $98.0 million, which primarily was driven by the favorable impact of lower inventories and accounts receivable of $110.0 million and $32.3 million, respectively, partially offset by a decrease in accounts payable of $50.4 million. +Cash from operations during fiscal 2015 was lower compared to fiscal 2014 due primarily to lower earnings performance in the current year and less favorable changes in working capital balances compared to fiscal 2014. During fiscal 2015 working capital balances drove a source of cash of $1.7 million, which includes the negative impact of increased inventories of $68.8 million, which were partially offset by an increase in accounts payable of $52.9 million and decrease in other operating assets of $14.6 million. +Investing Activities +The Company made capital expenditures of $ 55.3 million in fiscal 2016 compared to $ 46.4 million in fiscal 2015. The increase in capital expenditures during fiscal 2016 was primarily due to building improvements for the Company's new Boston office and a new distribution center. The majority of the Company's capital expenditures in both years were for building improvements and information system enhancements. +The Company made capital expenditures of $46.4 million in fiscal 2015 compared to $30.0 million in fiscal 2014. The increase in capital expenditures during fiscal 2015 was primarily due to higher retail store and distribution center investments. +During fiscal 2016, the Company received proceeds of $7.8 million for the sale of a non-core business within the Multi-Brand Group operating segment. +30 +Table of Contents +Financing Activities +On September 15, 2016, the Company executed an amendment to the Credit Agreement (the “Amended Agreement”), which increased the outstanding principal balance of Term Loan A by $150.0 million, and increased the amount the Company can borrow under the Revolving Credit Facility by $100.0 million. Under the Amended Agreement, the debt capacity is now limited to an aggregate debt amount not to exceed $1,750.0 million, unless certain specified conditions are met. The Amended Agreement also provides greater operational flexibility to the Company and its subsidiaries, including with respect to the ability of the Company and its subsidiaries to make restricted payments including share repurchases, investments and asset dispositions. The interest rates applicable to amounts outstanding are unchanged under the Amended Agreement, as are the maturity date of July 13, 2020 and financial covenants. +On August 30, 2016, the Company issued $250.0 million of senior notes that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.000% with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company had $375.0 million of senior notes outstanding that were able to be traded in the public market (the “Public Bonds”) that were due on October 15, 2020. On September 15, 2016, the Company redeemed the Public Bonds using the proceeds of the Senior Note issuance and the additional borrowings on Term Loan A. The Company incurred $ 18.1 million of debt extinguishment and other costs during fiscal 2016 in connection with the fourth quarter refinancing of the Company's debt. The debt extinguishment costs included a $13.1 million early redemption premium to retire the Company's previously outstanding Public bonds, a $4.0 million write-off of unamortized debt issuance costs and other costs associated with the refinancing. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $600.0 million, which includes a $200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Credit Facility of $2.6 million and $3.8 million as of December 31, 2016 and January 2, 2016, respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +As of December 31, 2016 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company's debt at December 31, 2016 was $ 820.7 million compared to $ 809.8 million at January 2, 2016 . The net increase in debt during fiscal 2016 was primarily a result of net incremental borrowings from the fiscal 2016 refinancing activities less principal payments on the Term Loan A Facility. The net decrease in debt of $77.8 million during fiscal 2015 was primarily a result of principal payments on the Term Loan A Facility, including $58.0 million of voluntary debt payments during fiscal 2015. +The Company has various foreign revolving credit facilities with aggregate available borrowings of $ 9.0 million that are uncommitted and, therefore, each borrowing against the applicable facility is subject to approval by the lender. Borrowings against these facilities were $ 1.8 million as of December 31, 2016 . There were no borrowings as of January 2, 2016. +Cash flow from operating activities, along with borrowings on the Revolving Credit Facility, if any, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flows from operating activities are expected to be used to reduce debt, fund internal and external growth initiatives, purchase property, plant and equipment, pay dividends or repurchase the Company’s common stock. +The Company’s Board of Directors approved a common stock repurchase program on February 11, 2014. This program, which was terminated on August 8, 2016, authorized the repurchase of up to $ 200.0 million of common stock. On August 8, 2016, the Company's Board of Directors approved a new common stock repurchase program that authorizes the repurchase of up to $ 300.0 million in common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement. The Company repurchased $ 61.9 million , $ 92.6 million and $ 0 of Company common stock in fiscal years 2016 , 2015 and 2014 , respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 4.9 million , $ 7.7 million and $ 10.5 million of shares in fiscal years 2016 , 2015 and 2014 , respectively, in connection with employee transactions related to stock incentive plans. +The Company declared cash dividends of $0.24 per share in fiscal years 2016, 2015 and 2014. Dividends paid totaled $ 23.5 million , $ 24.4 million and $ 24.0 million , for fiscal years 2016, 2015 and 2014, respectively. +NEW ACCOUNTING STANDARDS +Refer to Note 2 of the consolidated financial statements for information related to new accounting standards. +31 +Table of Contents +CRITICAL ACCOUNTING POLICIES +The preparation of the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s consolidated financial statements. +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances for the relevant periods may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, an adjustment to net revenues would be recorded in the period the determination was made. +Accounts Receivable +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers' failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. Historically, losses have been within the Company’s expectations. Adjustments to these estimates may be required if the financial condition of the Company’s customers were to change. If the Company were to determine adjustments to the allowance for uncollectible accounts were appropriate, the Company would record either an increase or decrease to general and administrative expenses in the period in which the Company made such a determination. +Inventory +The Company values its inventory at the lower of cost or market. Cost is determined by the last-in, first out ("LIFO") method for all domestic raw materials and work-in-process inventories and certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or market for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated market value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such +32 +Table of Contents +assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company performs the second step of the goodwill impairment test to determine the impairment charge, if any. The second step involves a hypothetical allocation of the estimated fair value of the reporting unit to its net tangible and intangible assets (excluding goodwill) as if the reporting unit were newly acquired, which results in an implied fair value of the goodwill. The amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. In the fourth quarter of fiscal 2016 and fiscal 2015, as a result of its testing, the Company recorded a $7.1 million and $2.5 million impairment charge, respectively, for the Stride Rite trade name. The Company did not recognize any impairment charges for indefinite-lived intangible assets during fiscal 2014. The Company did not recognize any impairment charges for goodwill during fiscal years 2016, 2015 or 2014. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. The Company recorded impairment charges of $ 12.2 million and $ 11.6 million during fiscal 2016 and 2015, respectively, related to certain consumer-direct store assets where the estimated future cash flows did not support the net book value of the store assets. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that are generally lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. The Company has not provided for U.S. taxes for earnings generated in foreign jurisdictions because it plans to reinvest these earnings indefinitely outside the U.S. However, if certain foreign earnings previously treated as permanently reinvested are repatriated, the additional U.S. tax liability could have a material adverse effect on the Company’s results of operations and financial position. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the fiscal year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +33 +Table of Contents +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent fiscal year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 4.35 % at December 31, 2016 , compared to 5.00 % at January 2, 2016 . Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 7.25 % and 7.50 % for fiscal years 2016 and 2015 , respectively. This determination is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Stock-Based Compensation +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB") Accounting Standards Codification ("ASC") Topic 718, Compensation – Stock Compensation ("ASC 718"). The Company utilizes the Black-Scholes-Merton formula, which requires the input of subjective assumptions to calculate the amount to expense in the consolidated statements of operations related to stock options granted to employees. These assumptions include estimating (a) the length of time employees will retain their vested stock options before exercising them (“expected term”), (b) the volatility of the Company’s common stock price over the expected term and (c) the number of options that are expected to be forfeited. Changes in these assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense amounts recognized in the consolidated statements of operations. +OFF-BALANCE SHEET ARRANGEMENTS +The Company has no off-balance sheet arrangements as of December 31, 2016 . +CONTRACTUAL OBLIGATIONS +As of December 31, 2016 , the Company had the following payments under contractual obligations due by period: +(In millions) +Total +Less than +1 year +1-3 years +3-5 years +More than +5 years +Long-term debt obligations (1) +$ +1,000.2 +$ +66.9 +$ +168.1 +$ +456.9 +$ +308.3 +Capital lease obligations +0.6 +0.1 +0.2 +0.3 +— +Operating lease obligations +358.3 +47.6 +83.1 +68.4 +159.2 +Purchase obligations (2) +288.6 +288.6 +— +— +— +Pension (3) +2.8 +2.8 +— +— +— +Supplemental Executive Retirement Plan +39.1 +3.8 +7.6 +7.8 +19.9 +Deferred compensation +2.3 +0.4 +0.9 +0.6 +0.4 +Dividends declared +5.8 +5.8 +— +— +— +Minimum royalties +6.4 +2.0 +2.9 +1.5 +— +Minimum advertising +24.8 +3.3 +6.7 +7.2 +7.6 +Total (4) +$ +1,728.9 +$ +421.3 +$ +269.5 +$ +542.7 +$ +495.4 +(1) +Includes principal and interest payments on the Company’s long-term debt, net of the impact of the interest rate swaps. Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 31, 2016 . Actual cash outflows may differ significantly due to changes in underlying interest rates. See Note 10 to the consolidated financial statements for additional information on the Company's interest rate swaps. +(2) +Purchase obligations related primarily to inventory and capital expenditure commitments. +34 +Table of Contents +(3) +Pension obligations reflect expected pension funding, which is the amount of required funding obligations under government regulation. Funding amounts are calculated on an annual basis and no required or planned funding beyond one year has been determined. +(4) +The total amount of unrecognized tax benefits on the consolidated balance sheet at December 31, 2016 is $ 8.9 million . At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. +Under the provisions of FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Colombia, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Colombian peso, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At December 31, 2016 and January 2, 2016 , the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $ 171.3 million and $ 215.8 million , respectively, with maturities ranging up to 356 and 349 days, respectively. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies, but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. Accordingly, the Company currently does not hedge these net investments. At December 31, 2016 , a stronger U.S. dollar compared to foreign currencies versus fiscal 2015 decreased the value of these investments in net assets by $ 6.2 million . At January 2, 2016 , a stronger U.S. dollar compared to foreign currencies versus fiscal 2014 decreased the value of these investments in net assets by $ 30.4 million . +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on borrowings used to finance acquisitions and working capital requirements. The Company’s total variable-rate debt was $ 575.6 million at December 31, 2016 and the Company held two interest rate swap agreements denominated in U.S. dollars that effectively convert $ 496.0 million to fixed-rate debt. The interest rate swap derivative instruments are held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instruments is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swaps was determined to be a net liability of $ 5.2 million at the end of fiscal 2016 . As of December 31, 2016 , the weighted-average interest rate on the Company’s variable-rate debt was 2.2%. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $0.8 million. +The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +35 +Table of Contents +Item 8. +Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +37 +Consolidated Statements of Comprehensive Income +38 +Consolidated Balance Sheets +39 +Consolidated Statements of Cash Flows +41 +Consolidated Statements of Stockholders' Equity +42 +Note 1. Summary of Significant Accounting Policies +44 +Note 2. New Accounting Standards +46 +Note 3. Earnings Per Share +48 +Note 4. Goodwill and Other Intangibles +50 +Note 5. Accounts Receivable +51 +Note 6. Inventories +51 +Note 7. Debt +51 +Note 8. Accumulated Other Comprehensive Income (Loss) +52 +Note 9. Property, Plant and Equipment +53 +Note 10. Financial Instruments and Risk Management +54 +Note 11. Stock-Based Compensation +55 +Note 12. Retirement Plans +57 +Note 13. Income Taxes +60 +Note 14. Litigation and Contingencies +62 +Note 15. Business Segments +63 +Note 16. Restructuring Activities +65 +Note 17. Business Acquisitions +67 +Note 18. Quarterly Results of Operations (Unaudited) +68 +Reports of Independent Registered Public Accounting Firm +69 +36 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) +2016 +2015 +2014 +Revenue +$ +2,494.6 +$ +2,691.6 +$ +2,761.1 +Cost of goods sold +1,526.4 +1,636.9 +1,673.8 +Restructuring costs +8.3 +3.0 +1.0 +Gross profit +959.9 +1,051.7 +1,086.3 +Selling, general and administrative expenses +758.0 +816.0 +815.2 +Acquisition-related integration costs +— +— +15.2 +Restructuring and impairment costs +42.0 +34.6 +26.0 +Operating profit +159.9 +201.1 +229.9 +Other expenses: +Interest expense, net +34.8 +38.2 +45.4 +Debt extinguishment and other costs +18.1 +1.6 +1.3 +Other expense (income), net +(3.5 +) +(3.3 +) +1.7 +Total other expenses +49.4 +36.5 +48.4 +Earnings before income taxes +110.5 +164.6 +181.5 +Income taxes +23.0 +41.4 +47.6 +Net earnings +87.5 +123.2 +133.9 +Less: net earnings (loss) attributable to noncontrolling interest +(0.2 +) +0.4 +0.8 +Net earnings attributable to Wolverine World Wide, Inc. +$ +87.7 +$ +122.8 +$ +133.1 +Net earnings per share (see Note 3): +Basic +$ +0.90 +$ +1.22 +$ +1.33 +Diluted +$ +0.89 +$ +1.20 +$ +1.30 +See accompanying notes to consolidated financial statements. +37 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income +Fiscal Year +(In millions) +2016 +2015 +2014 +Net earnings +$ +87.5 +$ +123.2 +$ +133.9 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +(6.6 +) +(31.8 +) +(18.5 +) +Foreign exchange contracts: +Unrealized gain arising during the period, net of taxes of $3.0, $4.9 and $4.1 +5.5 +10.8 +9.1 +Reclassification adjustments into cost of goods sold, net of taxes of $(2.2), $(6.0) and $0.2 +(5.8 +) +(13.0 +) +0.3 +Interest rate swaps: +Unrealized loss arising during the period, net of taxes of $(1.1), $(2.2) and $(0.1) +(2.0 +) +(4.2 +) +(0.2 +) +Reclassification adjustments into interest expense, net of taxes of $0.5, $0.7 and $0 +1.1 +1.4 +— +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $(11.2), $8.2 and $(19.6) +(20.8 +) +15.2 +(36.3 +) +Amortization of prior actuarial losses, net of taxes of $1.7, $7.3 and $2.6 +3.2 +13.5 +4.8 +Amortization of prior service cost +0.1 +0.1 +0.1 +Settlement gain included in net income, net of taxes of $0, $0 and $(0.3) +(0.1 +) +— +(0.7 +) +Other comprehensive loss +(25.4 +) +(8.0 +) +(41.4 +) +Less: other comprehensive loss attributable to noncontrolling interest +(0.4 +) +(1.4 +) +(1.1 +) +Other comprehensive loss attributable to Wolverine World Wide, Inc. +(25.0 +) +(6.6 +) +(40.3 +) +Comprehensive income +62.1 +115.2 +92.5 +Less: comprehensive loss attributable to noncontrolling interest +(0.6 +) +(1.0 +) +(0.3 +) +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +62.7 +$ +116.2 +$ +92.8 +See accompanying notes to consolidated financial statements. +38 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) +December 31, +2016 +January 2, +2016 +ASSETS +Current assets: +Cash and cash equivalents +$ +369.8 +$ +194.1 +Accounts receivable, less allowances: +December 31, 2016 – $39.4 +January 2, 2016 – $44.4 +263.3 +298.9 +Inventories: +Finished products +333.7 +448.0 +Raw materials and work-in-process +15.0 +18.6 +Total inventories +348.7 +466.6 +Prepaid expenses and other current assets +49.6 +54.2 +Total current assets +1,031.4 +1,013.8 +Property, plant and equipment: +Gross cost +434.0 +431.5 +Accumulated depreciation +(287.9 +) +(299.9 +) +Property, plant and equipment, net +146.1 +131.6 +Other assets: +Goodwill +424.3 +429.1 +Indefinite-lived intangibles +678.5 +685.4 +Amortizable intangibles, net +83.8 +97.3 +Deferred income taxes +2.3 +3.7 +Other +65.3 +73.5 +Total other assets +1,254.2 +1,289.0 +Total assets +$ +2,431.7 +$ +2,434.4 +See accompanying notes to consolidated financial statements. +39 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets – continued +(In millions, except share data) +December 31, +2016 +January 2, +2016 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +150.8 +$ +199.7 +Accrued salaries and wages +30.8 +28.5 +Other accrued liabilities +111.7 +108.2 +Current maturities of long-term debt +37.5 +16.9 +Borrowings under revolving credit agreements and other short-term notes +2.9 +— +Total current liabilities +333.7 +353.3 +Long-term debt, less current maturities +780.3 +792.9 +Accrued pension liabilities +143.1 +109.6 +Deferred income taxes +161.0 +178.6 +Other liabilities +39.5 +30.3 +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity: +Common stock – par value $1, authorized 320,000,000 shares; shares issued (including shares in treasury): +December 31, 2016 – 105,647,040 shares +January 2, 2016 – 103,915,928 shares +105.6 +103.9 +Additional paid-in capital +103.2 +75.9 +Retained earnings +1,015.1 +950.8 +Accumulated other comprehensive loss +(81.1 +) +(56.1 +) +Cost of shares in treasury: +December 31, 2016 – 8,522,425 shares +January 2, 2016 – 5,457,726 shares +(176.3 +) +(110.8 +) +Total Wolverine World Wide, Inc. stockholders’ equity +966.5 +963.7 +Noncontrolling interest +7.6 +6.0 +Total stockholders’ equity +974.1 +969.7 +Total liabilities and stockholders’ equity +$ +2,431.7 +$ +2,434.4 +See accompanying notes to consolidated financial statements. +40 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow +Fiscal Year +(In millions) +2016 +2015 +2014 +OPERATING ACTIVITIES +Net earnings +$ +87.5 +$ +123.2 +$ +133.9 +Adjustments necessary to reconcile net earnings to net cash provided by operating activities: +Depreciation and amortization +43.5 +48.7 +53.3 +Deferred income taxes +(5.8 +) +(26.7 +) +(19.1 +) +Stock-based compensation expense +22.8 +18.7 +25.1 +Excess tax benefits from stock-based compensation +(0.6 +) +(4.9 +) +(5.6 +) +Pension contribution +(1.5 +) +— +(3.9 +) +Pension and SERP expense +10.4 +27.9 +11.9 +Debt extinguishment costs +17.4 +1.6 +1.3 +Restructuring and impairment costs +50.3 +37.6 +27.0 +Cash payments related to restructuring costs +(19.4 +) +(10.3 +) +(7.7 +) +Other +(6.3 +) +(2.0 +) +11.5 +Changes in operating assets and liabilities: +Accounts receivable +32.3 +5.8 +76.5 +Inventories +110.0 +(68.8 +) +2.9 +Other operating assets +2.3 +14.6 +(17.8 +) +Accounts payable +(50.4 +) +52.9 +16.2 +Other operating liabilities +3.8 +(2.8 +) +9.1 +Net cash provided by operating activities +296.3 +215.5 +314.6 +INVESTING ACTIVITIES +Additions to property, plant and equipment +(55.3 +) +(46.4 +) +(30.0 +) +Proceeds from sale of a business +7.8 +— +— +Investment in joint venture +(0.5 +) +— +(1.1 +) +Other +9.6 +(3.6 +) +(3.7 +) +Net cash used in investing activities +(38.4 +) +(50.0 +) +(34.8 +) +FINANCING ACTIVITIES +Net borrowings under revolving credit agreements and other short-term notes +3.1 +— +— +Borrowings of long-term debt +400.0 +450.0 +— +Payments on long-term debt +(393.8 +) +(530.9 +) +(249.8 +) +Payments of debt issuance and debt extinguishment costs +(17.9 +) +(2.4 +) +— +Cash dividends paid +(23.5 +) +(24.4 +) +(24.0 +) +Purchase of common stock for treasury +(52.7 +) +(92.6 +) +— +Purchases of shares under employee stock plans +(4.9 +) +(7.7 +) +(10.5 +) +Proceeds from the exercise of stock options +7.4 +13.3 +7.3 +Excess tax benefits from stock-based compensation +0.6 +4.9 +5.6 +Contributions from noncontrolling interests +2.2 +2.5 +1.0 +Net cash used in financing activities +(79.5 +) +(187.3 +) +(270.4 +) +Effect of foreign exchange rate changes +(2.7 +) +(7.9 +) +0.2 +Increase (decrease) in cash and cash equivalents +175.7 +(29.7 +) +9.6 +Cash and cash equivalents at beginning of the year +194.1 +223.8 +214.2 +Cash and cash equivalents at end of the year +$ +369.8 +$ +194.1 +$ +223.8 +OTHER CASH FLOW INFORMATION +Interest paid +$ +33.7 +$ +34.9 +$ +42.2 +Net income taxes paid +35.4 +49.8 +70.2 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid +1.7 +— +— +Purchase of common stock for treasury not yet paid +9.2 +— +— +See accompanying notes to consolidated financial statements. +41 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at December 28, 2013 +$ +100.8 +$ +5.0 +$ +743.1 +$ +(9.2 +) +$ +(2.1 +) +$ +3.8 +$ +841.4 +Net earnings +133.1 +0.8 +133.9 +Other comprehensive loss +(40.3 +) +(1.1 +) +(41.4 +) +Shares issued under stock incentive plans, net of forfeitures (795,523 shares) +0.8 +(0.8 +) +— +Shares issued for stock options exercised, net (639,655 shares) +0.7 +6.6 +7.3 +Stock-based compensation expense +25.1 +25.1 +Income tax benefits from stock incentive plans +4.2 +4.2 +Cash dividends declared ($0.24 per share) +(24.0 +) +(24.0 +) +Issuance of treasury shares (35,484 shares) +— +1.0 +1.0 +Purchases of shares under employee stock plans (379,782 shares) +(10.5 +) +(10.5 +) +Capital contribution from noncontrolling interests +1.0 +1.0 +Balance at January 3, 2015 +$ +102.3 +$ +40.1 +$ +852.2 +$ +(49.5 +) +$ +(11.6 +) +$ +4.5 +$ +938.0 +Net earnings +122.8 +0.4 +123.2 +Other comprehensive loss +(6.6 +) +(1.4 +) +(8.0 +) +Shares issued under stock incentive plans, net of forfeitures (721,621 shares) +0.7 +(0.7 +) +— +Shares issued for stock options exercised, net (941,157 shares) +0.9 +12.4 +13.3 +Stock-based compensation expense +18.7 +18.7 +Income tax benefits from stock incentive plans +5.4 +5.4 +Cash dividends declared ($0.24 per share) +(24.2 +) +(24.2 +) +Issuance of treasury shares (40,016 shares) +— +1.1 +1.1 +Purchase of common stock for treasury for treasury (4,804,665 shares) +(92.6 +) +(92.6 +) +Purchases of shares under employee stock plans (276,275 shares) +(7.7 +) +(7.7 +) +Capital contribution from noncontrolling interests +2.5 +2.5 +Balance at January 2, 2016 +$ +103.9 +$ +75.9 +$ +950.8 +$ +(56.1 +) +$ +(110.8 +) +$ +6.0 +$ +969.7 +See accompanying notes to consolidated financial statements. +42 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at January 2, 2016 +$ +103.9 +$ +75.9 +$ +950.8 +$ +(56.1 +) +$ +(110.8 +) +$ +6.0 +$ +969.7 +Net earnings (loss) +87.7 +(0.2 +) +87.5 +Other comprehensive loss +(25.0 +) +(0.4 +) +(25.4 +) +Shares issued under stock incentive plans, net of forfeitures (1,200,527 shares) +1.2 +(1.3 +) +(0.1 +) +Shares issued for stock options exercised, net (530,585 shares) +0.5 +6.9 +7.4 +Stock-based compensation expense +22.8 +22.8 +Income tax deficiencies from stock incentive plans +(1.0 +) +(1.0 +) +Cash dividends declared ($0.24 per share) +(23.4 +) +(23.4 +) +Issuance of treasury shares (57,798 shares) +(0.1 +) +1.2 +1.1 +Purchase of common stock for treasury for treasury (2,838,919 shares) +(61.9 +) +(61.9 +) +Purchases of shares under employee stock plans (283,578 shares) +(4.8 +) +(4.8 +) +Capital contribution from noncontrolling interests +2.2 +2.2 +Balance at December 31, 2016 +$ +105.6 +$ +103.2 +$ +1,015.1 +$ +(81.1 +) +$ +(176.3 +) +$ +7.6 +$ +974.1 +See accompanying notes to consolidated financial statements. +43 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years Ended December 31, 2016 , January 2, 2016 and January 3, 2015 +1. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; children’s footwear, industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Sperry ® , Stride Rite ® and Wolverine ® . Licensing and distribution arrangements with third parties extend the global reach of the Company’s brand portfolio. The Company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers, as well as a leathers division that markets Wolverine Performance Leathers™ . +Principles of Consolidation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2016 and 2015 had 52 weeks and fiscal 2014 contained 53 weeks. Beginning in fiscal 2017, the Company's fiscal year will be comprised of four 13 week quarters. The fiscal year end will continue to be on the Saturday nearest to December 31. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, a reduction or increase to net revenues would be recorded in the period this determination was made. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Shipping and Handling Costs +Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 121.5 million , $ 137.2 million and $ 126.6 million for fiscal years 2016 , 2015 and 2014 , respectively. Prepaid advertising totaled $ 4.0 million and $ 6.9 million as of December 31, 2016 and January 2, 2016 , respectively. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates market. +44 +Table of Contents +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +Inventories +The Company values its inventory at the lower of cost or market. Cost is determined by the LIFO method for all domestic raw materials and work-in-process inventories and certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for computer hardware and software, store furniture and fixtures, office furniture and machinery and equipment. Normal repairs and maintenance are expensed as incurred. +Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings and improvements, from 5 to 10 years for leasehold improvements and from 3 to 10 years for machinery, equipment and software. +Operating Leases +The Company leases its retail stores and certain distribution and office facilities under operating leases. In addition to the minimum lease payments, leases may include rent escalation clauses, contingent rental expense and lease incentives, including rent holidays and tenant improvement allowances. Rent expense is recognized on a straight-line basis over the term of the lease from the time at which the Company takes possession of the property. Landlord-provided tenant improvement allowances are recorded in other liabilities and amortized as a credit to rent expense over the term of the lease. Leasehold improvements are depreciated at the lesser of the estimated useful life or lease term, including reasonably-assured lease renewals as determined at lease inception. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. These costs are amortized into earnings through interest expense over the terms of the respective agreements. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units. Goodwill is considered impaired if the recorded value of the tangible and intangible net assets exceeds the fair value of the reporting unit. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. See Note 4 to the consolidated financial statements for information related to the results of the Company's annual test. +45 +Table of Contents +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. See Note 16 to the consolidated financial statements for information related to long-lived assets that were determined to be impaired. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 12 to the consolidated financial statements for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 st of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2016, 2015 and 2014. +2. +NEW ACCOUNTING STANDARDS +The Financial Accounting Standards Board (“FASB”) issued the following Accounting Standards Updates (“ASU”) that have been adopted by the Company during fiscal 2016. The following is a summary of the effect of adoption of these new standards. +Standard +Description +Effect on the Financial Statements or Other Significant Matters +ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period +Requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. +Did not have a material impact on its existing stock-based compensation plans. +ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern +Requires that an entity’s management evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. +Did not have a significant impact on its quarterly reporting process. +46 +Table of Contents +Standard +Description +Effect on the Financial Statements or Other Significant Matters +ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements +Requires that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the debt. Allows an entity to present debt issuance costs associated with a revolving line of credit arrangement as an asset, regardless of whether a balance is outstanding. Does not affect the recognition and measurement guidance for debt issuance costs. +Resulted in the reclassification of $10.2 million of deferred financing costs associated with the Company’s long-term debt from deferred financing costs to long-term debt as of January 2, 2016. In accordance with ASU 2015-15, the Company elected to continue to present its debt issuance costs related to its revolving line of credit as an asset. Due to the adoption of this standard, these deferred financing costs are included in other noncurrent assets. The prior period disclosures have been restated to conform to the current year presentation. The new standards did not affect the Company’s results of operations or cash flows. +ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments +Provides guidance for how certain cash receipts and cash payments should be presented and classified in the statement of cash flows, including debt prepayment or extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. +Did not have a material impact on its existing cash flows presentation. +The FASB has issued the following ASUs that have not yet been adopted by the Company. The following is a summary of the planned adoption period and anticipated impact of adopting these new standards. +Standard +Description +Planned Period of Adoption +Effect on the Financial Statements or Other Significant Matters +ASU 2014-09, Revenue from Contracts with Customers (as amended by ASUs 2015-04, 2016-08, 2016-10 and 2016-12) +The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. +Q1 2018 +The Company does not expect the adoption of the new standard to have a significant impact on its consolidated financial position, results of operations or cash flows. The effect on results is not expected to be material because the Company’s analysis of contracts under the new revenue recognition standard supports the recognition of revenue at a point in time for the majority of contracts, which is consistent with the current revenue recognition model. Revenue on the majority of contracts will continue to be recognized at a point in time because of the distinct transfer of control to the customer. +ASU 2015-11, Simplifying the Measurement of Inventory +Requires that an entity measure inventory at the lower of cost and net realizable value. This ASU does not apply to inventory measured using last-in, first-out. +Q1 2017 +The Company does not expect the new standard to have a significant impact on its consolidated financial position, results of operations or cash flows. +ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities +Enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. +Q1 2018 +The Company is evaluating the impacts of the new standard on its consolidated financial statements. +47 +Table of Contents +Standard +Description +Planned Period of Adoption +Effect on the Financial Statements or Other Significant Matters +ASU 2016-02, Leases +The core principle is that a lessee shall recognize a lease asset and lease liability in its statement of financial position. A lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. +Q1 2019 +The Company is evaluating the impacts of the new standard on its existing leases. +ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships +Clarifies that the novation of a derivative contract (i.e., a change in the counterparty) in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship, provided that all other hedge accounting criteria continue to be met. +Q1 2017 +The Company does not expect the new standard to have a significant impact on its consolidated financial position, results of operations or cash flows. +ASU 2016-09, Improvements to Employee Share-Based Payment Accounting +Seeks to provide simplification to issues of share-based payment awards in relation to income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. +Q1 2017 +The adoption of the new standard in fiscal 2017 is not expected to have a significant impact on the Company’s results of operations and cash flows as the income tax effects of its share-based payment awards will be recognized as a component of income tax expense, instead of as a component of additional paid-in capital. +ASU 2016-13, Measurement of Credit Losses on Financial Instruments +Seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. +Q1 2020 +The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables. +3. +EARNINGS PER SHARE +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +48 +Table of Contents +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) +2016 +2015 +2014 +Numerator: +Net earnings attributable to Wolverine World Wide, Inc. +$ +87.7 +$ +122.8 +$ +133.1 +Adjustment for earnings allocated to nonvested restricted common stock +(2.1 +) +(2.8 +) +(2.9 +) +Net earnings used to calculate basic earnings per share +85.6 +120.0 +130.2 +Adjustment for earnings reallocated to nonvested restricted common stock +0.1 +0.1 +0.1 +Net earnings used to calculate diluted earnings per share +$ +85.7 +$ +120.1 +$ +130.3 +Denominator: +Weighted average shares outstanding +99.0 +102.0 +101.4 +Adjustment for nonvested restricted common stock +(3.7 +) +(3.4 +) +(3.2 +) +Shares used to calculate basic earnings per share +95.3 +98.6 +98.2 +Effect of dilutive stock options +0.9 +1.4 +1.9 +Shares used to calculate diluted earnings per share +96.2 +100.0 +100.1 +Net earnings per share: +Basic +$ +0.90 +$ +1.22 +$ +1.33 +Diluted +$ +0.89 +$ +1.20 +$ +1.30 +Options granted to purchase 3,100,328 shares of common stock in fiscal 2016 , 2,264,711 shares in fiscal 2015 and 1,116,576 shares in fiscal 2014 have not been included in the denominator for the computation of diluted earnings per share for each of those fiscal years because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 31, 2016 or January 2, 2016 . The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company’s Board of Directors approved a common stock repurchase program on February 11, 2014. This program, which was terminated on August 8, 2016, authorized the repurchase of up to $ 200.0 million of common stock. On August 8, 2016, the Company's Board of Directors approved a new common stock repurchase program that authorizes the repurchase of up to $ 300.0 million in common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement. The Company repurchased $ 61.9 million , $ 92.6 million and $ 0 of Company common stock in fiscal years 2016 , 2015 and 2014 , respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 4.9 million , $ 7.7 million and $ 10.5 million of shares in fiscal years 2016 , 2015 and 2014 , respectively, in connection with employee transactions related to stock incentive plans. +49 +Table of Contents +4. +GOODWILL AND OTHER INTANGIBLE ASSETS +The changes during fiscal years 2016 and 2015 in the carrying amount of goodwill and indefinite-lived intangibles, which comprises trademarks and trade names, is as follows: +(In millions) +Goodwill +Indefinite-lived intangibles +Total +Balance at January 3, 2015 +$ +438.8 +$ +690.5 +$ +1,129.3 +Impairment +— +(5.1 +) +(5.1 +) +Foreign currency translation effects +(9.7 +) +— +(9.7 +) +Balance at January 2, 2016 +$ +429.1 +$ +685.4 +$ +1,114.5 +Purchase of intangibles +— +0.2 +0.2 +Sale of a business +(2.3 +) +— +(2.3 +) +Impairment +— +(7.1 +) +(7.1 +) +Foreign currency translation effects +(2.5 +) +— +(2.5 +) +Balance at December 31, 2016 +$ +424.3 +$ +678.5 +$ +1,102.8 +In the fourth quarter of fiscal 2016, as a result of its annual impairment testing, the Company recorded a $ 7.1 million impairment charge for the Stride Rite ® trade name. The results of our indefinite-lived intangible impairment test based on the Company's outlook for future operating results continues to support the book value of the Sperry ® trade name. If the operating results for Stride Rite ® and Sperry ® were to decline in future periods, the Company may record a non-cash indefinite-lived intangible asset impairment charge. The carrying value of the Company’s Stride Rite ® and Sperry ® trade name indefinite-lived intangible assets was $ 7.9 million and $ 586.8 million , respectively, as of December 31, 2016. +In the second quarter of fiscal 2015, the Company recorded a $ 2.6 million impairment charge for the Cushe ® trade name, due to the decision to wind-down operations of the Cushe ® brand. In the fourth quarter of fiscal 2015, as a result of its annual impairment testing, the Company recorded a $ 2.5 million impairment charge for the Stride Rite ® trade name. +During fiscal 2016, the Company sold a non-core business within the Multi-Brand Group operating segment, which included an allocation of goodwill for the brand. +The Company did not recognize any impairment charges for goodwill during fiscal years 2016 or 2015 or for goodwill or indefinite-lived intangible assets during fiscal 2014, as the annual impairment testing indicated that all reporting unit goodwill and indefinite-lived intangible asset fair values exceeded their respective carrying values. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. They consist primarily of customer relationships, licensing arrangements and developed product technology. The combined gross carrying value and accumulated amortization for these amortizable intangibles is as follows: +December 31, 2016 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +16 +$ +100.5 +$ +21.6 +$ +78.9 +Licensing arrangements +1 +28.8 +27.6 +1.2 +Developed product technology +1 +14.9 +12.7 +2.2 +Other +3 +11.4 +9.9 +1.5 +Total +$ +155.6 +$ +71.8 +$ +83.8 +January 2, 2016 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +17 +$ +100.5 +$ +16.7 +$ +83.8 +Licensing arrangements +1 +28.8 +22.0 +6.8 +Developed product technology +2 +14.9 +9.8 +5.1 +Other +3 +11.2 +9.6 +1.6 +Total +$ +155.4 +$ +58.1 +$ +97.3 +50 +Table of Contents +Amortization expense for other intangible assets was $ 14.0 million , $ 15.6 million and $ 15.7 million for fiscal years 2016 , 2015 and 2014 , respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 31, 2016 is as follows: +(In millions) +2017 +2018 +2019 +2020 +2021 +Amortization expense +$ +9.0 +$ +5.5 +$ +5.3 +$ +5.2 +$ +5.0 +5. +ACCOUNTS RECEIVABLE +The Company has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis that expires in the fourth quarter of fiscal 2017. Under the agreement, up to $ 200.0 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheet, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability for all periods presented. For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. The following is a summary of the stated amount of accounts receivable that was sold as well as fees charged by the financial institution. +Fiscal Year +(In millions) +2016 +2015 +2014 +Accounts receivable sold +$ +614.9 +$ +657.4 +$ +72.8 +Fees charged +1.7 +1.4 +0.1 +The fees are recorded in other expense. Net proceeds of this program are classified in operating activities in the consolidated condensed statements of cash flows. This program reduced the Company's accounts receivable by $ 81.1 million and $ 77.6 million as of December 31, 2016 and January 2, 2016 , respectively. +6. +INVENTORIES +The Company used the LIFO method to value inventories of $ 66.2 million at December 31, 2016 and $ 78.7 million at January 2, 2016 . If the FIFO method had been used, inventories would have been $ 22.4 million and $ 27.0 million higher than reported at December 31, 2016 and January 2, 2016 , respectively. +7. +DEBT +Total debt consists of the following obligations: +(In millions) +December 31, +2016 +January 2, +2016 +Term Loan A, due July 13, 2020 +$ +575.6 +$ +444.4 +Senior Notes, 5.000% interest, due September 1, 2026 +250.0 +— +Public Bonds, 6.125% interest, due October 15, 2020 +— +375.0 +Borrowings under revolving credit agreements and other short-term notes +2.9 +— +Capital lease obligation +0.5 +0.6 +Unamortized debt issuance costs +(8.3 +) +(10.2 +) +Total debt +$ +820.7 +$ +809.8 +On September 15, 2016, the Company amended its credit agreement (as amended, the "Credit Agreement"). The Credit Agreement provided a $ 588.8 million term loan facility (“Term Loan A”) and a $ 600.0 million revolving credit facility (the “Revolving Credit Facility”), both with maturity dates of July 13, 2020. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $600.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined +51 +Table of Contents +in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Credit Facility of $ 2.6 million and $ 3.8 million as of December 31, 2016 and January 2, 2016 , respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +The interest rates applicable to amounts outstanding under Term Loan A and to U.S. dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.25% to 1.00% , or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.25% to 2.00% (all capitalized terms used in this sentence are as defined in the Credit Agreement). The Company has two interest rate swap arrangements that reduce the Company’s exposure to fluctuations in interest rates on its variable rate debt. At December 31, 2016 , Term Loan A had a weighted-average interest rate of 2.85 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Credit Agreement also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Credit Agreement requires compliance with the following financial covenants: a maximum Consolidated Leverage Ratio; a maximum Consolidated Secured Leverage Ratio; and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Credit Agreement). As of December 31, 2016 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +On August 30, 2016, the Company issued $ 250.0 million of senior notes that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.000% with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company had $ 375.0 million of senior notes outstanding that were able to be traded in the public market (the “Public Bonds”) that were due on October 15, 2020. On September 15, 2016, the Company redeemed the Public Bonds using the proceeds of the Senior Note issuance and the additional borrowings on Term Loan A. Due to the early redemption of the Public Bonds, the Company incurred debt extinguishment costs of $ 17.4 million in fiscal 2016. This amount includes a $ 13.1 million early redemption premium and the write-off of the unamortized balance of the deferred financing fees related to the original debt issuance. +The Company has various foreign revolving credit facilities with aggregate available borrowings of $ 9.0 million that are uncommitted and, therefore, each borrowing against the applicable facility is subject to approval by the lender. Borrowings against these facilities were $ 1.8 million and $ 0 as of December 31, 2016 and January 2, 2016 , respectively. +The Company has a capital lease obligation with payments scheduled to continue through February 2022. +The Company included in interest expense the amortization of deferred financing costs of $ 3.1 million , $ 3.7 million and $ 4.2 million in fiscal years 2016 , 2015 and 2014 , respectively. +Annual maturities of debt, including capital leases, for the fiscal years subsequent to December 31, 2016 are as follows: +(In millions) +2017 +2018 +2019 +2020 +2021 +Thereafter +Annual maturities of debt +$ +40.4 +$ +52.7 +$ +60.1 +$ +425.7 +$ +0.1 +$ +250.0 +8. +ACCUMLATED OTHER COMPREHENSIVE INCOME (LOSS) +Comprehensive income (loss) represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +52 +Table of Contents +The change in accumulated other comprehensive income (loss) during fiscal years 2016 and 2015 is as follows: +(In millions) +Foreign +currency +translation +adjustments +Foreign +exchange +contracts +Interest +rate +swap +Pension +adjustments +Total +Balance of accumulated other comprehensive income (loss) as of January 3, 2015 +$ +(16.9 +) +$ +8.6 +$ +0.4 +$ +(41.6 +) +$ +(49.5 +) +Other comprehensive income (loss) before reclassifications (1) +(30.4 +) +10.8 +(4.2 +) +15.2 +(8.6 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +(19.0 +) +(2) +2.1 +20.9 +(3) +4.0 +Income tax expense (benefit) +— +6.0 +(0.7 +) +(7.3 +) +(2.0 +) +Net reclassifications +— +(13.0 +) +1.4 +13.6 +2.0 +Net current-period other comprehensive income (loss) (1) +(30.4 +) +(2.2 +) +(2.8 +) +28.8 +(6.6 +) +Balance of accumulated other comprehensive income (loss) as of January 2, 2016 +$ +(47.3 +) +$ +6.4 +$ +(2.4 +) +$ +(12.8 +) +$ +(56.1 +) +Other comprehensive income (loss) before reclassifications (1) +(6.2 +) +5.5 +(2.0 +) +(20.8 +) +(23.5 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +(8.0 +) +(2) +1.6 +4.9 +(3) +(1.5 +) +Income tax expense (benefit) +— +2.2 +(0.5 +) +(1.7 +) +— +Net reclassifications +— +(5.8 +) +1.1 +3.2 +(1.5 +) +Net current-period other comprehensive income (loss) (1) +(6.2 +) +(0.3 +) +(0.9 +) +(17.6 +) +(25.0 +) +Balance of accumulated other comprehensive income (loss) as of December 31, 2016 +$ +(53.5 +) +$ +6.1 +$ +(3.3 +) +$ +(30.4 +) +$ +(81.1 +) +(1) +Other comprehensive income is reported net of taxes and noncontrolling interest. +(2) +Amounts reclassified are included in cost of goods sold. +(3) +Amounts reclassified are included in the computation of net pension expense (see Note 12 to the consolidated financial statements for additional details). +9. +PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) +December 31, +2016 +January 2, +2016 +Land +$ +4.1 +$ +4.1 +Buildings and improvements +125.1 +105.6 +Machinery and equipment +189.6 +211.7 +Software +115.2 +110.1 +Gross cost +434.0 +431.5 +Less: accumulated depreciation +287.9 +299.9 +Property, plant and equipment, net +$ +146.1 +$ +131.6 +Depreciation expense was $ 29.5 million , $ 33.1 million and $ 37.6 million for fiscal years 2016 , 2015 and 2014 , respectively. +The Company leases machinery, equipment and certain warehouse, office and retail store space under operating lease agreements that expire at various dates through 2035. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes and other operating expenses. +Rental expense under all operating leases, consisting primarily of minimum rentals, totaled $ 55.5 million , $ 54.8 million and $ 59.2 million in fiscal years 2016 , 2015 and 2014 , respectively. The Company recognized sublease income of $ 0.9 million in fiscal 2016 and is due $ 4.0 million in future rentals under noncancelable subleases. +53 +Table of Contents +Minimum rental payments due under all noncancelable operating leases for the fiscal years subsequent to December 31, 2016 are as follows: +(In millions) +2017 +2018 +2019 +2020 +2021 +Thereafter +Minimum rental payments +$ +47.6 +$ +43.6 +$ +39.5 +$ +35.4 +$ +33.0 +$ +159.2 +10. +FINANCIAL INSTRUMENTS AND RISK MANAGEMENT +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: +Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: +Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: +Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +The Company’s financial instruments consist of cash and cash equivalents, accounts and notes receivable, accounts payable, foreign currency forward exchange contracts, interest rate swap arrangements, borrowings under revolving credit agreements and long-term debt. The carrying amount of the Company’s financial instruments is historical cost, which approximates fair value, except for the interest rate swaps and foreign currency forward exchange contracts, which are carried at fair value. The carrying value and the fair value of the Company’s debt, excluding capital leases, are as follows: +(In millions) +December 31, 2016 +January 2, 2016 +Carrying value +$ +820.2 +$ +809.2 +Fair value +827.6 +836.3 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +The Company follows ASC 815, which is intended to improve transparency in financial reporting and requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extend out to a maximum of 356 days and 349 days, as of December 31, 2016 and January 2, 2016 , respectively. The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency translation exposure. Foreign currency derivatives not designated as hedges are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has two interest rate swap arrangements which exchange floating rate for fixed rate interest payments over the life of the agreements without the exchange of the underlying notional amounts. These derivative instruments, which, unless otherwise terminated, will mature on October 6, 2017 and July 13, 2020 , and have been designated as cash flow hedges of the debt. The notional amounts of the interest rate swap arrangements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The Company does not hold or issue financial instruments for trading purposes. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) +December 31, 2016 +January 2, 2016 +Foreign exchange contracts: +Hedge contracts +$ +169.2 +$ +192.6 +Non-hedge contracts +2.1 +23.2 +Interest rate swaps +496.0 +609.7 +54 +Table of Contents +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) +December 31, 2016 +January 2, 2016 +Financial assets: +Foreign exchange contracts - hedge +$ +6.6 +$ +6.7 +Foreign exchange contracts - non-hedge +— +0.5 +Interest rate swaps +0.1 +0.2 +Financial liabilities: +Foreign exchange contracts - hedge +$ +(0.3 +) +$ +— +Foreign exchange contracts - non-hedge +— +(0.1 +) +Interest rate swaps +(5.3 +) +(3.9 +) +The fair value of the foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. Hedge effectiveness is evaluated by the hypothetical derivative method. Any hedge ineffectiveness is reported within the Cost of goods sold line item in the consolidated statements of operations. Hedge ineffectiveness was not material to the Company’s consolidated financial statements for fiscal years 2016 , 2015 and 2014 . If, in the future, the foreign exchange contracts are determined to be ineffective hedges or terminated before their contractual termination dates, the Company would be required to reclassify into earnings all or a portion of the unrealized amounts related to the cash flow hedges that are currently included in accumulated other comprehensive loss within stockholders’ equity. +The differential paid or received on the interest rate swap arrangements is recognized as interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swaps and the variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the hedges’ inception, and continues to assess on an ongoing basis, whether the derivatives used in the hedging transaction are highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of accumulated other comprehensive loss and will be recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value will be immediately recognized in earnings. +11. +STOCK-BASED COMPENSATION +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC 718. The Company recognized compensation expense of $ 22.8 million , $ 18.7 million and $ 25.1 million and related income tax benefits of $ 7.9 million , $ 6.1 million and $ 8.4 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2016 , 2015 and 2014 , respectively. +Stock-based compensation expense recognized in the consolidated statements of operations for fiscal years 2016 , 2015 and 2014 was based on awards ultimately expected to vest and, as such, was reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. +As of December 31, 2016 , the Company had 6,126,194 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance. Each option or stock appreciation right granted counts as 1.0 stock incentive unit and all other awards granted, including restricted stock, count as 2.6 stock incentive units. Options granted under each plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . Restricted stock issued under these plans is subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment or upon failure to achieve performance criteria in certain instances. These restrictions typically lapse over a three- to five-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted share awards provide for accelerated vesting under various scenarios, including retirement and upon a change in control of the Company. With regard to acceleration of vesting upon retirement, employees of eligible retirement age are vested in accordance with plan provisions and applicable stock option and restricted stock agreements. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued, shares or treasury shares. +55 +Table of Contents +The Board of Directors awards an annual grant of performance share awards to certain plan participants. The number of performance-based shares that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the performance shares that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of shares to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $3.36 , $6.35 and $6.20 per share for fiscal years 2016 , 2015 and 2014 , respectively, with the following weighted-average assumptions. +Fiscal Year +2016 +2015 +2014 +Expected market price volatility (1) +27.2 +% +28.8 +% +29.6 +% +Risk-free interest rate (2) +1.0 +% +1.3 +% +1.2 +% +Dividend yield (3) +1.4 +% +0.9 +% +0.9 +% +Expected term (4) +4 years +4 years +4 years +(1) +Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant. +(2) +Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. +(3) +Represents the Company’s estimated cash dividend yield for the expected term. +(4) +Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior. +A summary of the stock option transactions is as follows: +Shares Under Option +Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at December 28, 2013 +6,031,241 +$ +16.00 +6.2 +$ +104.9 +Granted +1,349,849 +27.09 +Exercised +(737,402 +) +13.15 +Cancelled +(245,695 +) +24.16 +Outstanding at January 3, 2015 +6,397,993 +$ +18.36 +6.2 +$ +68.3 +Granted +1,366,137 +28.22 +Exercised +(1,003,896 +) +14.63 +Cancelled +(387,840 +) +26.93 +Outstanding at January 2, 2016 +6,372,394 +$ +20.54 +6.1 +$ +8.6 +Granted +2,445,573 +16.88 +Exercised +(562,610 +) +14.41 +Cancelled +(761,695 +) +23.03 +Outstanding at December 31, 2016 +7,493,662 +$ +19.55 +6.4 +$ +28.7 +Estimated forfeitures +(30,328 +) +Vested or expected to vest at December 31, 2016 +7,463,334 +$ +19.56 +6.4 +$ +28.6 +Nonvested at December 31, 2016 and expected to vest +(2,766,770 +) +Exercisable at December 31, 2016 +4,696,564 +$ +19.35 +5.0 +$ +18.3 +The total pretax intrinsic value of options exercised during fiscal years 2016 , 2015 and 2014 was $4.0 million , $14.5 million and $10.3 million , respectively. As of December 31, 2016 , there was $ 4.8 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 1.4 years. As of January 2, 2016 and January 3, 2015 , there was $4.6 million and $4.6 million , respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.2 years and 1.2 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price of the Company's stock was above the strike price ("in-the-money"), as of that date. The total +56 +Table of Contents +number of in-the-money options exercisable as of December 31, 2016 , based on the Company’s closing stock price of 21.95 , was 3,546,676 and the weighted-average exercise price was $16.81 . As of January 2, 2016 , 1,811,921 outstanding options were exercisable and in-the-money and the weighted-average exercise price was $11.94 . +A summary of the nonvested restricted shares and units is as follows: +Restricted +Awards +Weighted- +Average +Grant Date +Fair Value +Performance +Awards +Weighted- +Average +Grant Date +Fair Value +Nonvested at December 28, 2013 +1,930,425 +$ +18.61 +1,431,000 +$ +20.31 +Granted +689,345 +27.09 +609,335 +27.03 +Vested +(700,543 +) +16.49 +(244,625 +) +18.85 +Forfeited +(192,045 +) +22.39 +(304,940 +) +20.27 +Nonvested at January 3, 2015 +1,727,182 +$ +22.44 +1,490,770 +$ +23.30 +Granted +677,113 +27.26 +732,124 +28.62 +Vested +(398,582 +) +18.99 +(311,343 +) +20.47 +Forfeited +(279,074 +) +25.90 +(405,432 +) +24.76 +Nonvested at January 2, 2016 +1,726,639 +$ +24.57 +1,506,119 +$ +26.08 +Granted +1,050,758 +16.89 +1,008,228 +16.71 +Vested +(443,380 +) +22.10 +(316,454 +) +23.54 +Forfeited +(386,639 +) +23.27 +(467,007 +) +23.22 +Nonvested at December 31, 2016 +1,947,378 +$ +21.24 +1,730,886 +$ +21.86 +As of December 31, 2016 , there was $ 16.6 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans. That cost is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of shares vested during the year ended December 31, 2016 was $ 7.7 million . As of January 2, 2016 , there was $17.2 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans. That cost was expected to be recognized over a weighted-average period of 1.9 years. The total fair value of shares vested during the year ended January 2, 2016 was $11.1 million . As of January 3, 2015 , there was $16.2 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under restricted stock award plans that was expected to be recognized over a weighted-average period of 2.0 years. The total fair value of shares vested during the year ended January 3, 2015 was $19.5 million . +As of December 31, 2016 , there was $ 8.2 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under performance-based award plans. That cost is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of shares vested during the year ended December 31, 2016 was $ 5.2 million . As of January 2, 2016 , there was $4.5 million of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under performance-based restricted stock award plans. That cost was expected to be recognized over a weighted-average period of 2.0 years. The total fair value of shares vested during the year ended January 2, 2016 was $8.7 million . As of January 3, 2015 , there was $6.0 million of unrecognized compensation expense related to nonvested share-based compensation arrangements granted under performance-based restricted stock award plans that was expected to be recognized over a weighted-average period of 1.3 years. The total fair value of shares vested during the year ended January 3, 2015 was $ 6.6 million . +12. +RETIREMENT PLANS +The Company has three non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan provides benefits based on the employee’s years of service and final average earnings. Effective January 1, 2013, the Company closed this plan to new participants. The Company’s second plan provides benefits at a fixed rate per year of service for certain employees under a collective bargaining arrangement. The Company’s third non-contributory defined benefit pension plan, which no longer accrues future benefits, covers certain eligible PLG associates. Prior to the freezing of that plan, eligible PLG participants accrued pension benefits at a fixed unit rate based on the participant’s service and/or compensation. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that +57 +Table of Contents +entitle those employees to receive payments from the Company for a period of time that generally extends 15 to 18 years following retirement. The Company maintains life insurance policies with a cash surrender value of $ 56.6 million at December 31, 2016 and $ 64.6 million at January 2, 2016 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for Company contributions based on earnings. The Company recognized expense for its defined contribution plans of $ 4.0 million , $ 4.6 million and $ 4.7 million in fiscal years 2016 , 2015 and 2014 , respectively. +The Company has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.1 million , $ 1.5 million and $ 1.2 million in fiscal years 2016 , 2015 and 2014 , respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 1.1 million at December 31, 2016 and $ 1.9 million at January 2, 2016 and was recognized as a deferred compensation liability on the consolidated balance sheets. +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2016 and 2015 : +Fiscal Year +(In millions) +2016 +2015 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ +392.8 +$ +432.9 +Service cost pertaining to benefits earned during the year +6.5 +9.0 +Interest cost on projected benefit obligations +19.1 +18.5 +Actuarial (gains) losses +31.0 +(50.1 +) +Benefits paid to plan participants +(24.7 +) +(17.5 +) +Settlements +(7.2 +) +— +Projected benefit obligations at end of the year +$ +417.5 +$ +392.8 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ +280.8 +$ +302.1 +Actual return on plan assets +19.1 +(6.2 +) +Company contributions - pension +1.5 +— +Company contributions - SERP +2.4 +2.4 +Benefits paid to plan participants +(24.7 +) +(17.5 +) +Settlements +(7.2 +) +— +Fair value of pension assets at end of the year +$ +271.9 +$ +280.8 +Funded status +$ +(145.6 +) +$ +(112.0 +) +Amounts recognized in the consolidated balance sheets: +Non-current assets +$ +1.2 +$ +1.6 +Current liabilities +(3.7 +) +(4.0 +) +Non-current liabilities +(143.1 +) +(109.6 +) +Net amount recognized +$ +(145.6 +) +$ +(112.0 +) +Amounts recognized in accumulated other comprehensive loss: +Unrecognized net actuarial loss (amounts net of tax: $(30.4) and $(12.7)) +$ +(45.3 +) +$ +(18.2 +) +Unrecognized prior service cost (amounts net of tax: $0 and $(0.1)) +— +(0.1 +) +Net amount recognized +$ +(45.3 +) +$ +(18.3 +) +Funded status of pension plans and SERP (supplemental): +Funded status of qualified defined benefit plans and SERP +$ +(145.6 +) +$ +(112.0 +) +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations +50.1 +58.4 +Net funded status of pension plans and SERP (supplemental) +$ +(95.5 +) +$ +(53.6 +) +The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 396.3 million at December 31, 2016 and $ 375.5 million at January 2, 2016 . +58 +Table of Contents +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) +2016 +2015 +2014 +Service cost pertaining to benefits earned during the year +$ +6.5 +$ +9.0 +$ +7.2 +Interest cost on projected benefit obligations +19.1 +18.5 +20.3 +Expected return on pension assets +(20.1 +) +(20.5 +) +(22.1 +) +Net amortization loss +5.0 +20.9 +7.5 +Settlement gain +(0.1 +) +— +(1.0 +) +Net pension expense +$ +10.4 +$ +27.9 +$ +11.9 +Less: SERP expense +5.8 +7.8 +7.6 +Qualified defined benefit pension plans expense +$ +4.6 +$ +20.1 +$ +4.3 +The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during 2017 is $ 9.8 million . +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2016 +2015 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +4.35% +5.00% +Rate of compensation increase - pension +4.85% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +5.00% +4.37% +Expected long-term rate of return on plan assets +7.25% +7.50% +Rate of compensation increase - pension +4.85% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five -year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and service cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 31, 2016 were 65 % in equity securities and 35 % in fixed income securities. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +December 31, 2016 +(In millions) +Level 1 +Level 2 +Level 3 +Total +Equity securities +$ +— +$ +161.0 +$ +— +$ +161.0 +59.2 +% +Fixed income investments +— +95.4 +0.3 +95.7 +35.2 +% +Other +— +— +15.2 +15.2 +5.6 +% +Fair value of plan assets +$ +— +$ +256.4 +$ +15.5 +$ +271.9 +100.0 +% +59 +Table of Contents +January 2, 2016 +(In millions) +Level 1 +Level 2 +Level 3 +Total +Equity securities +$ +— +$ +169.8 +$ +— +$ +169.8 +60.5 +% +Fixed income investments +— +99.2 +0.3 +99.5 +35.4 +% +Other +— +— +11.5 +11.5 +4.1 +% +Fair value of plan assets +$ +— +$ +269.0 +$ +11.8 +$ +280.8 +100.0 +% +The Company expects to contribute approximately $ 2.8 million to its qualified defined benefit pension plans and $ 3.8 million to the SERP in fiscal 2017 . +Expected benefit payments for the fiscal years subsequent to December 31, 2016 are as follows: +(In millions) +2017 +2018 +2019 +2020 +2021 +2022-2026 +Expected benefit payments +$ +20.3 +$ +20.6 +$ +21.0 +$ +21.5 +$ +22.1 +$ +118.6 +13. +INCOME TAXES +The geographic components of earnings before income taxes are as follows: +Fiscal Year +(In millions) +2016 +2015 +2014 +United States +$ +54.7 +$ +102.1 +$ +132.4 +Foreign +55.8 +62.5 +49.1 +Earnings before income taxes +$ +110.5 +$ +164.6 +$ +181.5 +The provisions for income taxes consist of the following: +Fiscal Year +(In millions) +2016 +2015 +2014 +Current expense: +Federal +$ +16.0 +$ +48.9 +$ +42.1 +State +1.4 +5.2 +5.6 +Foreign +11.3 +11.6 +18.0 +Deferred expense (credit): +Federal +(6.9 +) +(22.0 +) +(9.3 +) +State +(0.3 +) +(1.9 +) +(6.6 +) +Foreign +1.5 +(0.4 +) +(2.2 +) +Income tax provision +$ +23.0 +$ +41.4 +$ +47.6 +60 +Table of Contents +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate of 35 % to earnings before income taxes is as follows: +Fiscal Year +(In millions) +2016 +2015 +2014 +Income taxes at U.S. statutory rate (35%) +$ +38.7 +$ +57.6 +$ +63.5 +State income taxes, net of federal income tax +(6.1 +) +1.8 +3.7 +(Nontaxable earnings) non-deductible losses of foreign affiliates: +Cayman Islands +(0.4 +) +(0.4 +) +(5.5 +) +Other +0.2 +(1.9 +) +0.7 +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong +(17.3 +) +(18.1 +) +(16.4 +) +Other +3.3 +0.2 +3.6 +Adjustments for uncertain tax positions +0.2 +0.1 +— +Change in valuation allowance +2.0 +(1.3 +) +(19.2 +) +Change in state tax rates +(0.1 +) +(0.7 +) +(6.0 +) +Gain on intercompany sale of subsidiary stock +— +— +23.2 +Non-deductible expenses +1.9 +3.5 +1.1 +Other +0.6 +0.6 +(1.1 +) +Income tax provision +$ +23.0 +$ +41.4 +$ +47.6 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) +December 31, +2016 +January 2, +2016 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances +$ +17.2 +$ +22.1 +Deferred compensation accruals +9.0 +7.9 +Accrued pension expense +53.7 +40.1 +Stock-based compensation +22.6 +20.0 +Net operating loss, capital loss and foreign tax credit carryforward +9.7 +13.9 +Book over tax depreciation/amortization +2.0 +3.0 +Tenant lease expenses +5.0 +1.7 +Other +9.3 +8.7 +Total gross deferred income tax assets +128.5 +117.4 +Less valuation allowance +(11.5 +) +(9.5 +) +Net deferred income tax assets +117.0 +107.9 +Deferred income tax liabilities: +Intangible assets +(270.5 +) +(276.3 +) +Other +(5.2 +) +(6.5 +) +Total deferred income tax liabilities +(275.7 +) +(282.8 +) +Net deferred income tax liabilities +$ +(158.7 +) +$ +(174.9 +) +The valuation allowance for deferred income tax assets as of December 31, 2016 and January 2, 2016 was $ 11.5 million and $ 9.5 million , respectively. The net change in the total valuation allowance for fiscal years 2016 and 2015 was $ (2.0) million and $ 1.0 million , respectively. The valuation allowance for the prior year was primarily related to foreign net operating loss carryforwards, tax credit carryforwards in foreign jurisdictions and a capital loss carryforward in the U.S. that, in the judgment of management, are not more likely than not to be realized. In addition to the prior year’s foreign net operating loss and foreign tax credit carryforwards, the current year valuation allowance also includes U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities. The U.S. capital loss carryforward period expired in the current year and the capital loss is therefore no longer included in the valuation allowance. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation allowance was comprised of an increase against the state deferred tax assets +61 +Table of Contents +of $ 4.9 million and an increase related to state net operating loss carryforward of $ 1.1 million , partially offset by a decrease relating to the expiration of a capital loss carryforward of $ 2.7 million , a decrease related to an audit adjustment in foreign net operating loss of $ 0.8 million and a net decrease relating to the foreign net operating losses and foreign tax credits of $ 0.5 million . +At December 31, 2016 , the Company had foreign net operating loss carryforwards of $ 26.5 million , which have expiration periods ranging from five years to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. state net operating loss carryforwards of $ 51.3 million , which have expiration periods ranging from six years to twenty years during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.3 million , which are available for an unlimited carryforward period to offset future foreign taxes. The Company also had a U.S. capital loss carryforward expire in the current year of $ 7.6 million . +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) +2016 +2015 +Beginning balance +$ +8.7 +$ +8.6 +Increases related to current year tax positions +1.4 +1.1 +Decreases related to prior year positions +(1.0 +) +(0.6 +) +Decrease due to lapse of statute +(0.2 +) +(0.4 +) +Ending balance +$ +8.9 +$ +8.7 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 7.8 million as of December 31, 2016 and $7.7 million as of January 2, 2016 . The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 2.9 million as of December 31, 2016 and $ 2.8 million as of January 2, 2016 . +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be significant to the consolidated financial statements. +For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2012 . +The Company has not established a deferred tax liability on the amount of foreign unremitted earnings of $ 527.9 million at December 31, 2016 . As of December 31, 2016 , the Company had $ 369.8 million of cash and equivalents on hand, of which $ 227.8 million was held outside of the U.S. The Company intends to permanently reinvest these funds outside of the U.S., and current plans do not demonstrate a need to repatriate this cash to fund its U.S. operations. However, if these funds were repatriated, the Company would be required to accrue and pay applicable U.S. taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these unremitted earnings due to the complexity of the hypothetical calculation. +14. +LITIGATION AND CONTINGENCIES +The Company is involved in various environmental claims and other legal actions arising in the normal course of business. The environmental claims include sites where the U.S. Environmental Protection Agency has notified the Company that it is a potentially responsible party with respect to environmental remediation. These remediation claims are subject to ongoing environmental impact studies, assessment of remediation alternatives, allocation of costs between responsible parties and concurrence by regulatory authorities and have not yet advanced to a stage where the Company’s liability is fixed. However, after taking into consideration legal counsel’s evaluation of all actions and claims against the Company, it is management’s opinion that the outcome of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +The Company is involved in routine litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment and intellectual property. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is management’s opinion that the outcome of these items will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +62 +Table of Contents +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to December 31, 2016 are as follows: +(In millions) +2017 +2018 +2019 +2020 +2021 +Thereafter +Minimum royalties +$ +2.0 +$ +1.4 +$ +1.5 +$ +1.5 +$ +— +$ +— +Minimum advertising +3.3 +3.3 +3.4 +3.5 +3.7 +7.6 +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.0 million , $ 2.0 million and $ 2.3 million for fiscal years 2016 , 2015 and 2014 , respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales. In accordance with these agreements, the Company incurred advertising expense of $ 3.2 million , $ 3.3 million and $ 4.1 million for fiscal years 2016 , 2015 and 2014 , respectively. +15. +BUSINESS SEGMENTS +During the first quarter of fiscal 2016, the Company’s portfolio of brands was realigned into the following four operating segments, which the Company has determined to be reportable operating segments. All prior period disclosures have been restated to reflect these new reportable operating segments. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear, Sebago ® footwear and apparel and Cushe ® footwear; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of Stride Rite ® footwear and apparel and the Company's multi-brand consumer-direct businesses. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Reported revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and impairment costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. +The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies set forth in Note 1 to the consolidated financial statements. +63 +Table of Contents +Company management uses various financial measures to evaluate the performance of the reportable operating segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. All prior period amounts have been restated to reflect the new reportable operating segments. +Fiscal Year +(In millions) +2016 +2015 +2014 +Revenue: +Wolverine Outdoor & Lifestyle Group +$ +890.6 +$ +957.5 +$ +1,024.6 +Wolverine Boston Group +889.4 +942.8 +906.1 +Wolverine Heritage Group +347.0 +370.5 +369.7 +Wolverine Multi-Brand Group +304.3 +351.2 +399.0 +Other +63.3 +69.6 +61.7 +Total +$ +2,494.6 +$ +2,691.6 +$ +2,761.1 +Operating profit (loss): +Wolverine Outdoor & Lifestyle Group +$ +166.8 +$ +197.7 +$ +216.0 +Wolverine Boston Group +121.7 +132.9 +132.9 +Wolverine Heritage Group +50.8 +54.6 +59.5 +Wolverine Multi-Brand Group +4.8 +5.2 +14.3 +Other +5.5 +5.6 +4.4 +Corporate +(189.7 +) +(194.9 +) +(197.2 +) +Total +$ +159.9 +$ +201.1 +$ +229.9 +Depreciation and amortization expense: +Wolverine Outdoor & Lifestyle Group +$ +3.0 +$ +3.4 +$ +3.7 +Wolverine Boston Group +4.1 +4.2 +3.4 +Wolverine Heritage Group +0.5 +0.5 +0.5 +Wolverine Multi-Brand Group +4.5 +6.3 +6.7 +Other +1.5 +1.5 +1.8 +Corporate +29.9 +32.8 +37.2 +Total +$ +43.5 +$ +48.7 +$ +53.3 +Capital expenditures: +Wolverine Outdoor & Lifestyle Group +$ +3.3 +$ +4.7 +$ +3.4 +Wolverine Boston Group +4.7 +8.3 +5.3 +Wolverine Heritage Group +0.5 +0.4 +0.3 +Wolverine Multi-Brand Group +2.5 +7.2 +8.1 +Other +1.5 +0.9 +0.4 +Corporate +42.8 +24.9 +12.5 +Total +$ +55.3 +$ +46.4 +$ +30.0 +64 +Table of Contents +(In millions) +December 31, +2016 +January 2, +2016 +Total assets: +Wolverine Outdoor & Lifestyle Group +$ +391.8 +$ +444.2 +Wolverine Boston Group +1,273.5 +1,324.2 +Wolverine Heritage Group +157.8 +169.9 +Wolverine Multi-Brand Group +140.8 +204.3 +Other +33.7 +23.9 +Corporate +434.1 +267.9 +Total +$ +2,431.7 +$ +2,434.4 +Goodwill: +Wolverine Outdoor & Lifestyle Group +$ +126.6 +$ +130.4 +Wolverine Boston Group +257.5 +256.2 +Wolverine Heritage Group +16.5 +16.5 +Wolverine Multi-Brand Group +23.7 +26.0 +Total +$ +424.3 +$ +429.1 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) +2016 +2015 +2014 +United States +$ +1,791.5 +$ +1,948.9 +$ +1,990.2 +Foreign: +Europe, Middle East and Africa +323.9 +345.3 +391.0 +Canada +120.5 +141.2 +163.0 +Other +258.7 +256.2 +216.9 +Total from foreign territories +703.1 +742.7 +770.9 +Total revenue +$ +2,494.6 +$ +2,691.6 +$ +2,761.1 +The location of the Company’s tangible long-lived assets, which is comprised of property, plant and equipment, is as follows: +(In millions) +December 31, +2016 +January 2, +2016 +January 3, +2015 +United States +$ +131.4 +$ +117.7 +$ +126.8 +Foreign countries +14.7 +13.9 +10.0 +Total +$ +146.1 +$ +131.6 +$ +136.8 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2016, the Company sourced approximately 98% of its footwear products from third-party suppliers located primarily in the Asia Pacific region. For fiscal 2016, the remainder was produced at Company-owned manufacturing facilities in the U.S. All apparel and accessories are sourced from third-party suppliers. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +16. +RESTRUCTURING ACTIVITIES +2016 Plan +On October 6, 2016, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations . As a part of the 2016 Plan, the Company intends to close certain retail stores during fiscal 2017. The Company currently estimates pretax charges related to the 2016 Plan will range from $ 43.0 million to $ 49.0 million . The Company estimates it will record the remaining charges through the end of fiscal 2017. Once fully implemented, the Company expects annual pretax benefits of approximately $ 20.0 million as a result of the 2016 Plan. The Company closed 51 retail stores in connection with the 2016 Plan during fiscal 2016 . +65 +Table of Contents +Costs incurred related to the 2016 Plan have been recorded within the Corporate category. The cumulative costs incurred is $ 5.8 million , with $ 2.7 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 3.1 million recorded in the restructuring and impairment costs line item as a component of operating expenses. The following is a summary of the activity during fiscal 2016, with respect to a reserve established by the Company in connection with the 2016 Plan, by category of costs. +(In millions) +Severance and employee related +Costs associated with exit or disposal activities +Total +Balance at January 2, 2016 +$ +— +$ +— +$ +— +Restructuring costs +0.8 +5.0 +5.8 +Amounts paid +— +(1.1 +) +(1.1 +) +Charges against assets +— +(2.7 +) +(2.7 +) +Balance at December 31, 2016 +$ +0.8 +$ +1.2 +$ +2.0 +2014 Plan +On July 9, 2014, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations (the “2014 Plan”). As a part of the 2014 Plan, the Company closed 136 retail stores, consolidated certain consumer-direct support functions and implemented certain other organizational changes. The Company completed the 2014 Plan during the first quarter of fiscal 2016. Costs incurred related to the 2014 Plan have been recorded within the Corporate category. The cumulative costs incurred is $ 49.5 million , with $ 6.5 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 43.0 million recorded in the restructuring and impairment costs line item as a component of operating expenses. Approximately $ 23.0 million represents non-cash charges. The Company expects annual pretax benefits of approximately $ 16.0 million as a result of the 2014 Plan. The majority of the remaining restructuring reserve relates to a lease liability that extends to 2019. +The following is a summary of the activity during fiscal 2016, 2015 and 2014, with respect to a reserve established by the Company in connection with the 2014 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at December 28, 2013 +$ +— +$ +— +$ +— +$ +— +Restructuring costs +2.6 +5.5 +13.1 +21.2 +Amounts paid +(1.6 +) +— +(3.4 +) +(5.0 +) +Charges against assets +— +(5.5 +) +(3.2 +) +(8.7 +) +Balance at January 3, 2015 +$ +1.0 +$ +— +$ +6.5 +$ +7.5 +Restructuring costs +2.9 +5.4 +9.0 +17.3 +Amounts paid +(1.8 +) +— +(7.2 +) +(9.0 +) +Charges against assets +— +(5.4 +) +(1.8 +) +(7.2 +) +Balance at January 2, 2016 +$ +2.1 +$ +— +$ +6.5 +$ +8.6 +Restructuring costs +1.2 +0.2 +9.6 +11.0 +Amounts paid +(3.3 +) +— +(7.5 +) +(10.8 +) +Charges against assets +— +(0.2 +) +(6.9 +) +(7.1 +) +Balance at December 31, 2016 +$ +— +$ +— +$ +1.7 +$ +1.7 +2013 Plan +On October 4, 2013, the Board of Directors of the Company approved a plan to restructure the Company’s Dominican Republic manufacturing operations in a manner intended to lower the Company’s cost of goods sold, as described below (the “2013 Plan”). During the fourth quarter of fiscal 2013, the Company sold a manufacturing facility in the Dominican Republic and closed a second manufacturing facility. The Company no longer maintains any Company-owned manufacturing operations in the Dominican Republic. The Company recognized $ 7.6 million of restructuring costs in fiscal 2013 and restructuring costs of $ 1.0 million during fiscal 2014. The Company considers the 2013 Plan complete and does not expect to recognize any further costs. All costs incurred for the 2013 Plan have been recognized in the Company’s Corporate category and are included in the restructuring costs line item as a component of cost of goods sold in the consolidated statements of operations. +66 +Table of Contents +The following is a summary of the activity during fiscal 2014, with respect to a reserve established by the Company in connection with the 2013 Plan, by category of costs. +(In millions) +Severance and employee related +Costs associated with exit or disposal activities +Total +Balance at December 28, 2013 +$ +— +$ +0.5 +$ +0.5 +Restructuring costs +0.1 +0.9 +1.0 +Amounts paid +(0.1 +) +(1.2 +) +(1.3 +) +Charges against assets +— +(0.2 +) +(0.2 +) +Balance at January 3, 2015 +$ +— +$ +— +$ +— +Other Restructuring Activities +During fiscal 2016, the Company recorded restructuring costs of $ 13.9 million in connection with certain organizational changes made during fiscal 2016. The costs associated with these restructuring activities were recorded within the Company’s Corporate category included in the restructuring and impairment costs line item as a component of operating expenses in the consolidated condensed statements of operations and comprehensive income. +During fiscal 2015, the Company recorded restructuring and impairment costs of $ 4.2 million related to its decision to wind-down operations of its Cushe ® brand. These costs included $ 2.6 million related to indefinite-lived intangibles and $ 1.6 million in other restructuring costs. The Company recorded these costs within its Corporate category in the restructuring and impairment costs line item as a component of operating expenses in the consolidated condensed statements of operations and comprehensive income. During fiscal 2016, the Company recorded additional restructuring costs of $ 0.3 million related to the Cushe ® brand. +During fiscal 2014, the Company recorded an impairment of an equity method investment and reserved certain receivables within the Company’s international operations. The impairment and asset charge were determined to be other-than-temporary and the Company recorded a non-cash charge of $ 4.8 million within its corporate category included in the restructuring and impairment costs line item as a component of operating expenses in the consolidated statements of operations. During fiscal 2015, the Company recorded additional restructuring costs of $ 2.0 million related to its international operations. +During the fourth quarters of fiscal 2016 and 2015, the Company recorded impairment costs of $ 7.1 million and $ 2.5 million , respectively, related to indefinite-lived intangibles of its Stride Rite ® brand. The Company recorded these costs within its Corporate category in the restructuring and impairment costs line item as a component of operating expenses in the consolidated statements of operations. +The Company recorded impairment charges of $ 12.2 million and $ 11.6 million during fiscal 2016 and 2015, respectively, related to certain consumer-direct store assets where the estimated future cash flows did not support the net book value of the store assets. These costs were recorded within its corporate category in the restructuring and impairment costs line item as a component of operating expenses in the consolidated statements of operations. +Nonrecurring Fair Value Measurements +The following is a summary of assets and impairments that were measured at fair value on a nonrecurring basis. +Fiscal 2016 +Fiscal 2015 +(In millions) +Fair Value +Impairment +Fair Value +Impairment +Property and equipment +$ +0.7 +$ +12.4 +$ +1.8 +$ +17.0 +Indefinite-lived intangibles +7.9 +7.1 +15.0 +5.1 +The property and equipment and indefinite-lived intangibles were valued using an income approach based on the discounted cash flows expected to be generated by the underlying assets (Level 3). See Note 10 to the consolidated financial statements for additional information on Level 3 fair value measurements. +17. +BUSINESS ACQUISITIONS +On October 9, 2012, the Company acquired all of the outstanding equity interests of PLG as well as certain other assets. Consideration paid to acquire PLG was approximately $ 1,249.5 million in cash. PLG markets casual and athletic footwear, apparel and related accessories for adults and children under well-known brand names including Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company accounted for the acquisition under the provisions of FASB ASC Topic 805, Business Combinations . The +67 +Table of Contents +related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results for PLG are included in the Company’s consolidated results of operations beginning October 9, 2012. +For fiscal 2014, the Company incurred $ 15.2 million of acquisition-related integration costs included within selling, general and administrative expenses within the Company’s consolidated statements of operations. These costs include other purchased services ($ 1.1 million ), compensation expenses ($ 3.9 million ) and other integration costs ($ 10.2 million ). +18. +QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) +The Company reports its quarterly results of operations on the basis of 12-week periods for each of the first three fiscal quarters and a 16-week period for the fiscal fourth quarter. The aggregate quarterly earnings per share amounts disclosed in the table below may not equal the annual per share amounts due to rounding and the fact that results for each quarter are calculated independently of the full fiscal year. The Company’s unaudited quarterly results of operations are as follows: +Fiscal 2016 +(In millions, except per share data) +First +Quarter +Second +Quarter +Third +Quarter +Fourth +Quarter +Revenue +$ +577.6 +$ +583.7 +$ +603.7 +$ +729.6 +Gross profit +228.8 +226.6 +237.3 +267.2 +Net earnings (loss) attributable to Wolverine World Wide, Inc. +17.4 +24.0 +48.2 +(1.9 +) +Net earnings (loss) per share: +Basic +$ +0.18 +$ +0.25 +$ +0.49 +$ +(0.02 +) +Diluted +0.18 +0.24 +0.49 +(0.02 +) +Fiscal 2015 +(In millions, except per share data) +First +Quarter +Second +Quarter +Third +Quarter +Fourth +Quarter +Revenue +$ +631.4 +$ +630.1 +$ +678.9 +$ +751.2 +Gross profit +261.4 +246.4 +271.7 +272.2 +Net earnings attributable to Wolverine World Wide, Inc. +40.1 +25.3 +45.8 +11.6 +Net earnings per share: +Basic +$ +0.40 +$ +0.25 +$ +0.45 +$ +0.12 +Diluted +0.39 +0.24 +0.44 +0.12 +68 +Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders of Wolverine World Wide, Inc. +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries as of December 31, 2016 and January 2, 2016 , and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2016 . Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. +We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. +In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wolverine World Wide, Inc. and subsidiaries at December 31, 2016 and January 2, 2016 , and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 , in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Wolverine World Wide, Inc.’s internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2017 expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +Grand Rapids, Michigan +February 28, 2017 +69 +Table of Contents +Report of Independent Registered Public Accounting Firm +The Board of Directors and Shareholders of Wolverine World Wide, Inc. +We have audited Wolverine World Wide Inc.’s internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Wolverine World Wide, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. +We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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. +In our opinion, Wolverine World Wide, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries as of December 31, 2016 and January 2, 2016 , and the related consolidated statements of operations, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2016 , and our report dated February 28, 2017 expressed an unqualified opinion thereon. +/s/ Ernst & Young LLP +Grand Rapids, Michigan +February 28, 2017 +70 +Table of Contents +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2016 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 31, 2016 . +The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the sixteen-week period ended December 31, 2016 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. +Other Information +None. +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine Worldwide to be held on May 4, 2017 . The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +Item 11. +Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Equity Compensation Plan Information +The following table provides information about the Company’s equity compensation plans as of December 31, 2016 : +71 +Table of Contents +Plan Category (1) +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights +(a) +Weighted Average Exercise Price of Outstanding Options, Warrants and Rights +(b) +Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans Excluding Securities Reflected in Column (a)) +(c) +Equity compensation plans approved by security holders +7,493,662 +(2), (3) +$19.55 +6,281,956 +(4) +Equity compensation plans not approved by security holders +— +— +— +Total +7,493,662 +$19.55 +6,281,956 +(1) +Each plan for which aggregated information is provided contains customary anti-dilution provisions that are applicable in the event of a stock split, stock dividend or certain other changes in the Company’s capitalization. +(2) +Includes: (i) 6,890,123 stock options awarded to employees under the Amended and Restated Stock Incentive Plan of 1999, the Amended and Restated Stock Incentive Plan of 2001, the Amended and Restated Stock Incentive Plan of 2003, the Amended and Restated Stock Incentive Plan of 2005, the Stock Incentive Plan of 2010, the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016; and (ii) and 603,539 stock options awarded to non-employee directors under the Amended and Restated Stock Incentive Plan of 2005, the Stock Incentive Plan of 2010, the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016. Column (a) does not include stock units credited to outside directors’ fee accounts or retirement accounts under the Outside Directors’ Deferred Compensation Plan. Stock units do not have an exercise price. Each stock unit credited to a director’s fee account and retirement account under the Outside Directors’ Deferred Compensation Plan will be converted into one share of common stock upon distribution. Column (a) also does not include shares of restricted or unrestricted common stock previously issued under the Company’s equity compensation plans. +(3) +Of this amount, 2,797,098 options were not exercisable as of December 31, 2016 due to vesting restrictions. +(4) +Comprised of: (i) 155,762 shares available for issuance under the Outside Directors’ Deferred Compensation Plan upon the retirement of the current directors or upon a change in control; and (ii) 6,126,194 shares issuable under the Stock Incentive Plan of 2016. +The Outside Directors’ Deferred Compensation Plan is a supplemental, unfunded, nonqualified deferred compensation plan for non-employee directors. Beginning in 2006, the Company began paying an annual equity retainer to non-management directors in the form of a contribution under the Outside Directors’ Deferred Compensation Plan. Non-management directors may also voluntarily elect to receive, in lieu of some or all directors’ fees, a number of stock units equal to the amount of the deferred directors’ fees divided by the fair market value of the Company’s common stock on the date of payment. These stock units are increased by a dividend equivalent based on dividends paid by the Company and the amount of stock units credited to the participating director’s fee account and retirement account. Upon distribution, the participating directors receive a number of shares of the Company’s common stock equal to the number of stock units to be distributed at that time. Distribution is triggered by termination of service as a director or by a change in control of the Company and can occur in a lump sum, in installments or on another deferred basis. A total of 397,158 shares have been issued to a trust to satisfy the Company’s obligations when distribution is triggered and are included in shares the Company reports as issued and outstanding. +The Stock Incentive Plan of 2016 is an equity-based incentive plan for officers, key employees, and directors. The Stock Incentive Plan of 2016 authorizes awards of stock options, restricted common stock, common stock, restricted stock units and/or stock appreciation rights. The Stock Incentive Plan of 2016 provides that each share of restricted or unrestricted common stock and each restricted stock unit issued under the plan is counted as 2.6 shares against the total number of shares authorized for issuance under the plan. The number of securities listed as remaining available in column (c) of the table assumes only stock options will be issued under the plan in the future; each stock option counts as only one share against the total number of shares authorized for issuance under the plan. Actual shares available under the plan will be less to the extent that the Company awards restricted common stock, unrestricted common stock or restricted stock units under the plan. The numbers provided in this footnote and in column (c) will increase to the extent that options relating to the number of shares listed in column (a) of the table or other outstanding awards (e.g., shares of restricted or unrestricted stock, restricted stock units or stock appreciation rights) previously issued under the plan are canceled, surrendered, modified, exchanged for substitutes, expire or terminate prior to exercise or vesting because the number of shares underlying any such awards will again become available for issuance under the plan under which the award was granted. +Of the total number of shares available under column (c), the number of shares with respect to the following plans may be issued other than upon the exercise of an option, warrant or right outstanding as of December 31, 2016 : +• +Outside Directors’ Deferred Compensation Plan: 155,762 +• +Stock Incentive Plan of 2016: 2,356,228 +72 +Table of Contents +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 14. +Principal Accounting Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +PART IV +Item 15. +Exhibits, Financial Statement Schedules +(a) +The following documents are filed as part of this report: +(1) +Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• +Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2016 , January 2, 2016 and January 3, 2015 . +• +Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 31, 2016 , January 2, 2016 and January 3, 2015 . +• +Consolidated Balance Sheets as of December 31, 2016 and January 2, 2016 . +• +Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2016 , January 2, 2016 and January 3, 2015 . +• +Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 31, 2016 , January 2, 2016 and January 3, 2015 . +• +Notes to the Consolidated Financial Statements. +• +Reports of Independent Registered Public Accounting Firm. +(2) +Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• +Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) +Exhibits +See the Exhibit Index included in this Form 10-K for the exhibits filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed in the Exhibit Index to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Item 16. +Form 10-K Summary +Not applicable. +73 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: +February 28, 2017 +By: +/s/ Blake W. Krueger +Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +February 28, 2017 +Blake W. Krueger +/s/ Michael D. Stornant +Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) +February 28, 2017 +Michael D. Stornant +/s/ Jeffrey M. Boromisa +Director +February 28, 2017 +Jeffrey M. Boromisa +/s/ Gina R. Boswell +Director +February 28, 2017 +Gina R. Boswell +/s/ Roxane Divol +Director +February 28, 2017 +Roxane Divol +/s/ William K. Gerber +Director +February 28, 2017 +William K. Gerber +/s/ Joseph R. Gromek +Director +February 28, 2017 +Joseph R. Gromek +/s/ David T. Kollat +Director +February 28, 2017 +David T. Kollat +/s/ Brenda J. Lauderback +Director +February 28, 2017 +Brenda J. Lauderback +/s/ Nicholas T. Long +Director +February 28, 2017 +Nicholas T. Long +/s/ Timothy J. O’Donovan +Director +February 28, 2017 +Timothy J. O’Donovan +/s/ Michael A. Volkema +Director +February 28, 2017 +Michael A. Volkema +74 +Table of Contents +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +Column A +Column B +Column C +Column D +Column E +Additions +(In millions) +Balance at +Beginning of +Period +(1) +Charged to +Costs and +Expenses +(2) +Charged to +Other +Accounts +(Describe) +Deductions +(Describe) +Balance at +End of +Period +Fiscal year ended December 31, 2016 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +21.8 +$ +23.6 +— +$ +28.2 +(A) +$ +17.2 +Allowance for sales returns +16.3 +64.4 +— +64.4 +(B) +16.3 +Allowance for cash discounts +6.3 +21.0 +— +21.4 +(C) +5.9 +Inventory valuation allowances +17.3 +15.9 +— +15.2 +(D) +18.0 +Total +$ +61.7 +$ +124.9 +— +$ +129.2 +$ +57.4 +Fiscal year ended January 2, 2016 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +20.6 +$ +20.4 +— +$ +19.2 +(A) +$ +21.8 +Allowance for sales returns +15.9 +62.6 +— +62.2 +(B) +16.3 +Allowance for cash discounts +4.5 +21.1 +— +19.3 +(C) +6.3 +Inventory valuation allowances +11.4 +16.9 +— +11.0 +(D) +17.3 +Total +$ +52.4 +$ +121.0 +— +$ +111.7 +$ +61.7 +Fiscal year ended January 3, 2015 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +18.3 +$ +34.9 +— +$ +32.6 +(A) +$ +20.6 +Allowance for sales returns +15.4 +68.9 +— +68.4 +(B) +15.9 +Allowance for cash discounts +4.1 +19.7 +— +19.3 +(C) +4.5 +Inventory valuation allowances +14.0 +14.0 +— +16.6 +(D) +11.4 +Total +$ +51.8 +$ +137.5 +— +$ +136.9 +$ +52.4 +(A) +Accounts charged off, net of recoveries. +(B) +Actual customer returns. +(C) +Discounts given to customers. +(D) +Adjustment upon disposal of related inventories. +A-1 +Table of Contents +EXHIBIT INDEX +Exhibit Number +Document +2.1 +Agreement and Plan of Merger, dated as of May 1, 2012, by and among WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Collective Brands, Inc. and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +3.1 +Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 19, 2015. +4.1 +Senior Notes Indenture, dated August 30, 2016, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +4.2 +Form of 5.000% Senior Note due 2026. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +10.1 +Amended and Restated Stock Incentive Plan of 1999.* Incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.2 +Amended and Restated Stock Incentive Plan of 2001.* Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.3 +Amended and Restated Stock Incentive Plan of 2003.* Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.4 +Amended and Restated Stock Incentive Plan of 2005.* Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.5 +Amended and Restated Directors’ Stock Option Plan.* Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.6 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.7 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 20, 2012. +10.8 +Amended and Restated Executive Long-Term Incentive Plan (3-Year Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 20, 2012. +10.9 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.10 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.10. +10.11 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.11 +10.12 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.12. +10.13 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.14 +Employees’ Pension Plan (Restated as amended through December 23, 2014).* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.15 +Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 16, 2012. +10.16 +Form of Stock Option Agreement for non-employee directors.* Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005. +10.17 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.18 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.19 +2016 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +E-1 +Table of Contents +Exhibit Number +Document +10.20 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.21 +Form of Performance Share Award Agreement (2015 - 2017 performance period).* Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.22 +Form of Performance Share Award Agreement (2016 - 2018 performance period).* Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.23 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.24 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.25 +409A Supplemental Executive Retirement Plan.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.25. +10.26 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.27 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.28 +Wolverine World Wide, Inc. Executive Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 7, 2016. +10.29 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.30 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.31 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on April 15, 2016. +10.32 +Limited Guarantee, dated as of May 1, 2012, entered into by Wolverine World Wide, Inc. in favor of Collective Brands, Inc. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.33 +Purchase Agreement, dated as of May 1, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.34 +Interim Agreement, dated as of May 1, 2012, by and among Wolverine World Wide, Inc., WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Golden Gate Capital Opportunity Fund, L.P. and Blum Strategic Partners IV, L.P. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.35 +Separation Agreement, dated as of May 1, 2012, by and between Wolverine World Wide, Inc. and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.36 +Amendment No. 1 to Separation Agreement, dated as of October 9, 2012, by and between the Company and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.37 +Amendment No. 1 to Purchase Agreement, dated as of October 9, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended September 8, 2012. +10.38 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +E-2 +Table of Contents +Exhibit Number +Document +10.39 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.40 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.41 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.42 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.43 +Receivables Sales Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.44 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.45 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +21 +Subsidiaries of Registrant. +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101.INS +XBRL Instance Document +101.SCH +XBRL Taxonomy Extension Schema Document +101.CAL +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +XBRL Taxonomy Extension Label Linkbase Document +101.PRE +XBRL Taxonomy Extension Presentation Linkbase Document +* +Management contract or compensatory plan or arrangement. +E-3 \ No newline at end of file diff --git a/raw/filings/0000110471/2016/0000110471-17-000010/filing_metadata.csv b/raw/filings/0000110471/2016/0000110471-17-000010/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..2e42ac1252d808300c4fc3a0db595c07a6078bdc --- /dev/null +++ b/raw/filings/0000110471/2016/0000110471-17-000010/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2017-02-28,2016-12-31,2017-02-28T21:56:53.000Z,0000110471-17-000010,wolverineform10-k2016.htm,FORM 10-K,13396304,1,0,https://www.sec.gov/Archives/edgar/data/110471/000011047117000010/wolverineform10-k2016.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047117000010/,2016,2016,1 diff --git a/raw/filings/0000110471/2016/0000110471-17-000010/item1.txt b/raw/filings/0000110471/2016/0000110471-17-000010/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..8b33385ee99348f2db3a0da04bb6e72ecdc94902 --- /dev/null +++ b/raw/filings/0000110471/2016/0000110471-17-000010/item1.txt @@ -0,0 +1,107 @@ +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, manufacturer and marketer of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sebago ® , Sperry ® , Stride Rite ® and Wolverine ® . The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel; Sperry ® apparel; and Stride Rite ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s brands are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +During the first quarter of fiscal 2016, the Company’s portfolio of brands was realigned into the following four operating segments, which the Company has determined to be reportable operating segments. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear and Sebago ® footwear and apparel; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of Stride Rite ® footwear and apparel and the Company's multi-brand consumer-direct businesses. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue of the operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; royalty income from the licensing of the Company’s trademarks; revenue from distribution arrangements with third-party distributors; and revenue from the Company’s mono-branded consumer-direct businesses, including revenue from eCommerce websites. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and impairment costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. +The Company’s Global Operations Group is responsible for manufacturing, sourcing, distribution, logistics and customer support. The Company directly sells its products in the U.S., Canada and certain countries in Europe to a wide range of customers, including department stores, national chains, catalog retailers, specialty retailers, mass merchants and internet retailers, and to governments and municipalities. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments +4 +Table of Contents +and other operating categories and financial information by geographic area is found in Note 15 to the consolidated financial statements of the Company which are included in Item 8 of this Annual Report on Form 10-K. +The Company's operating segments and related brands are described in more detail below. +1. +Wolverine Outdoor & Lifestyle Group +Merrell ® : Merrell ® products (footwear/apparel/accessories) are created to empower amazing outdoor lives. Known for quality, durability, versatility and comfort, Merrell ® is focused on delivering gear with compelling technologies, performance features and inspired styling for use both on the trail and around town. Merrell ® footwear offers an assortment of products in strategic categories such as technical hike, trail, run, outdoor fitness, lifestyle and work for both men and women. Merrell ® footwear is sold in outdoor specialty retailers, sporting goods chains, department stores, internet and catalog retailers as well as Merrell ® stores and an eCommerce site. Merrell ® apparel and accessories extend to an active outdoor lifestyle with a versatile line of apparel built for both performance and lifestyle. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories including technical duffels and backpacks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers, as well as the Chaco ® eCommerce site. Chaco ® also features MyChacos custom designs for sandals. +Sebago ® : Established i n 1946, Sebago ® shares its New England heritage and tradition with those who inspire to make the journey with them. Sebago ® creates timeless, handcrafted dress and casual products from quality materials, all with a sense of purpose and style. The original, handsewn Classic penny loafer and Docksides ® boat shoe remain unchanged since first crafted by Sebago ® decades ago. While embracing its heritage, Sebago ® has a true passion for taking the best of the past and evolving with today's consumer in mind. Along with authentic classics, the brand also offers new, modern footwear silhouettes and apparel and accessories. +2. +Wolverine Boston Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring ASV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand +5 +Table of Contents +is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, race, trail, Life on the Run and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +Keds ® : Keds ® is an authentic casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +3. +Wolverine Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) rugged outdoor for hunting; and (iii) lifestyle and heritage. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged outdoor product lines incorporate DuraShocks ® and other technologies and comfort features into products designed for outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers that have active lifestyles. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to the U.S. Department of Defense and the military branches of several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +4. +Wolverine Multi-Brand Group +Stride Rite ® : With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. Stride Rite ® is focused on delivering the best possible footwear across a range of categories for children under nine years of age. All Stride Rite ® products benefit from nearly a century of in-depth knowledge and understanding of how children walk and grow. Every new material and component is rigorously tested to ensure safety, proper +6 +Table of Contents +fit and durability for children. Stride Rite ® sells product under its own namesake brand, as well as children's footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and select other footwear brands, through a network of Company-owned mall-based specialty retail stores and a consumer-direct website. Stride Rite ® also distributes children's footwear through better department stores, independent retailers, sporting goods chains, mall specialty retailers, internet retailers and national family footwear stores. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +Other Businesses +In addition to its reportable segments, the Company also operates a performance leather business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company uses a network of independent Shoemobile ® distribution outlets to distribute certain of the Company’s work and occupational footwear brands at industrial facilities. +• +The Company solicits all branches of the U.S. military and submits bids for contracts to supply specific footwear products. +• +The Company also operates brick and mortar retail stores and eCommerce websites. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2016 or fiscal 2015. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue (and taking into consideration the 16 weeks or 17 weeks included in the Company’s fiscal fourth quarter versus the 12 weeks included in each +7 +Table of Contents +of the first three fiscal quarters). Beginning in fiscal 2017, the Company's fiscal year will be comprised of four 13 week quarters. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal free cash flow and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Asia, as well as in Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel manufactured or sourced under the Company’s brand names. The Company’s licensees directly control the balance. A substantial majority of the units sourced or manufactured by the Company are procured from third parties, with the remainder of the manufacturing produced at a Company-owned facility. The Company sources a majority of its footwear from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. Footwear manufactured by the Company is produced at a Company-operated facility located in Michigan. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 40 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Sebago ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company +8 +Table of Contents +has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through December 31, 2020. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 11, 2017, the Company had an order backlog of approximately $980 million compared to an order backlog of approximately $1,024 million at February 13, 2016. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2017 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +Compliance with foreign and domestic federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company. The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of December 31, 2016 , the Company had approximately 5,860 domestic and foreign production, office and sales employees. Approximately 45 employees were covered by a single union contract that expires on March 31, 2018. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee +9 +Table of Contents +Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2016/0000110471-17-000010/item13.txt b/raw/filings/0000110471/2016/0000110471-17-000010/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..d7a2a007152838de1cbac9cc05799e056a6d8573 --- /dev/null +++ b/raw/filings/0000110471/2016/0000110471-17-000010/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. \ No newline at end of file diff --git a/raw/filings/0000110471/2016/0000110471-17-000010/item9a.txt b/raw/filings/0000110471/2016/0000110471-17-000010/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..06a23757aeb9ef71397e176b4e1e0bb4b5b8b1a2 --- /dev/null +++ b/raw/filings/0000110471/2016/0000110471-17-000010/item9a.txt @@ -0,0 +1,9 @@ +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2016 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 31, 2016 . +The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the sixteen-week period ended December 31, 2016 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2016/0000110471-17-000010/rp_note.txt b/raw/filings/0000110471/2016/0000110471-17-000010/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000110471/2016/0000110471-17-000010/rpt_disclosure.txt b/raw/filings/0000110471/2016/0000110471-17-000010/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..26dc1761682a9e679b9ce0cb4e1a0aed5ae4dda4 --- /dev/null +++ b/raw/filings/0000110471/2016/0000110471-17-000010/rpt_disclosure.txt @@ -0,0 +1,54 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since January 2, 2016, the Company has not engaged in any "related person" transactions with its directors, executive officers or +holders of 5% or more of Company voting securities, affiliates or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. They require the Governance +Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must +review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +any employment compensation paid to an executive officer of the Company if the Compensation Committee approved or recommended to the Board of Directors for approval such compensation; +(2) +any compensation paid to a director for service as a director of the Company; +(3) +any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another +entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%; or +(4) +any transaction in which the Related Person's interest arises solely from the ownership of the Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and proxy statement, an executive officer, director or, to the extent information regarding such nominee is being +presented in a proxy or information statement relating to the election of that nominee as a director, nominee for election as a director; +(b) +beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +immediate family member * of any of the foregoing. +* Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers- and +fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person's home (other than a tenant or employee). +The +Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar +circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested +Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. +Page 88 | +Wolverine +Worldwide +Notice +of +2017 +Annual +Meeting +of +Shareholders +and +Proxy +Statement +Table of Contents \ No newline at end of file diff --git a/raw/filings/0000110471/2017/0000110471-18-000010/filing.txt b/raw/filings/0000110471/2017/0000110471-18-000010/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..cdcfe9f73a8d97163b0075a78fb31167675d6d82 --- /dev/null +++ b/raw/filings/0000110471/2017/0000110471-18-000010/filing.txt @@ -0,0 +1,5129 @@ +10-K +1 +wolverineform10-k2017.htm +FORM 10-K +Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 30, 2017 +or +¨ +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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware +38-1185150 +State or other jurisdiction of +incorporation or organization +(I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E., +Rockford, Michigan +49351 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Securities Exchange Act: +Title of each class +Name of each exchange on which registered +Common Stock, $1 Par Value +New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 þ No ¨ +Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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. ¨ +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 þ Accelerated filer ¨ +Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ +Emerging growth company ¨ +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 Act. ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 30, 2017 , the last business day of the registrant’s most recently completed second fiscal quarter: $ 2,604,753,929 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 16, 2018 : 96,009,236 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting to be held May 3, 2018 are incorporated by reference into Part III of this report. +Table of Contents +Table of Contents +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +21 +Item 2. +Properties +21 +Item 3. +Legal Proceedings +21 +Item 4. +Mine Safety Disclosures +21 +Supplemental Item. +Executive Officers of the Registrant +21 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6. +Selected Financial Data +24 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +25 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +35 +Item 8. +Financial Statements and Supplementary Data +37 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +76 +Item 9A. +Controls and Procedures +76 +Item 9B. +Other Information +76 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +76 +Item 11. +Executive Compensation +76 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +77 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +77 +Item 14. +Principal Accounting Fees and Services +77 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +77 +Item 16. +Form 10-K Summary +80 +SIGNATURES +81 +Appendix A: Financial Statement Schedule +A-1 +3 +Table of Contents +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• +changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• +the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• +the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• +the inability to effectively manage inventory levels; +• +increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• +foreign currency exchange rate fluctuations; +• +currency restrictions; +• +capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; +• +the cost and availability of raw materials, inventories, services and labor for contract manufacturers; +• +labor disruptions; +• +changes in relationships with, including the loss of, significant wholesale customers; +• +risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; +• +risks related to expansion into new markets and complementary product categories as well as consumer-direct operations; +• +the impact of seasonality and unpredictable weather conditions; +• +changes in general economic conditions and/or the credit markets on the Company’s distributors, suppliers and retailers; +• +increase in the Company’s effective tax rates; +• +failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• +the risks of doing business in developing countries and politically or economically volatile areas; +• +the ability to secure and protect owned intellectual property or use licensed intellectual property; +• +the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; +• +the potential breach of the Company’s databases, or those of its vendors, which contain certain personal information or payment card data; +• +problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; +• +strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, and implementing new initiatives and ventures; +• +the risk of impairment to goodwill and other intangibles; +• +the success of the Company’s restructuring and realignment initiatives; and +• +changes in future pension funding requirements and pension expenses. +These uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +4 +Table of Contents +PART I +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following four operating segments, which the Company has determined to be reportable operating segments. During the second quarter of fiscal 2017, the components within the Wolverine Multi-Brand Group were realigned as the Company transitioned Stride Rite ® to a global license arrangement, which was effective on July 2, 2017. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, and Chaco ® footwear; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of the Company’s Children’s footwear business and the Company's multi-brand consumer-direct businesses. The Children’s footwear business includes the Stride Rite ® licensed business, as well as children’s footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . +The reportable segments are engaged in designing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs, and environmental and other related costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. The Company’s Global Operations Group is responsible for sourcing, distribution, logistics and customer support. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments and other operating categories and financial information by geographic area is found in Note 16 to the consolidated financial statements. +5 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Wolverine Outdoor & Lifestyle Group +Merrell ® : Merrell ® products (footwear/apparel/accessories) are created to empower amazing outdoor lives. Known for quality, durability, versatility and comfort, Merrell ® is focused on delivering gear with compelling technologies, performance features and inspired styling for use both on the trail and around town. Merrell ® footwear offers an assortment of products in strategic categories such as technical hike, trail, run, outdoor fitness, lifestyle and work for both men and women. Merrell ® footwear is sold in outdoor specialty retailers, sporting goods chains, department stores, internet and catalog retailers as well as Merrell ® stores and an eCommerce site. Merrell ® apparel and accessories extend to an active outdoor lifestyle with a versatile line of apparel built for both performance and lifestyle. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories including technical duffels and backpacks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers, as well as the Chaco ® eCommerce site. Chaco ® also features MyChacos custom designs for sandals. +2. +Wolverine Boston Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring ASV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, race, trail, Life on the Run and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +6 +Table of Contents +Keds ® : Keds ® is an authentic casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +3. +Wolverine Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) rugged outdoor for hunting; and (iii) lifestyle and heritage. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged outdoor product lines incorporate DuraShocks ® and other technologies and comfort features into products designed for outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers that have active lifestyles. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +4. +Wolverine Multi-Brand Group +Children’s Footwear - The Children’s footwear business includes the Stride Rite ® licensed business, as well as children’s footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Children's footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® are sold through its owned wholesale channel, consumer-direct websites and by a license partner. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +7 +Table of Contents +Other Businesses +In addition to its reportable segments, the Company also operates a performance leather business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company also operates brick and mortar retail stores and eCommerce websites. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2017 or fiscal 2016 . +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more +8 +Table of Contents +meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through December 31, 2020. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 18, 2018, the Company had an order backlog of approximately $913 million compared to an order backlog of approximately $979 million at February 19, 2017. The February 19, 2017 order backlog contains $52 million related to fiscal 2017 divestitures. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2018 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +9 +Table of Contents +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of December 30, 2017 , the Company had approximately 3,700 domestic and foreign production, office and sales employees. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. +Risk Factors +Risks Related to the Company’s Business +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global economic conditions. Disposable income and consumer spending may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, +10 +Table of Contents +inflation, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer spending could adversely affect demand for the Company’s products. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and consumer-direct footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own more recognized brands; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness, gaining sourcing efficiencies, and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated, associate its brands with styles that are no longer popular and decrease demand for its products. Such failures could result in reduced sales, excess inventory, trade name impairments, lower gross margin and adverse impacts on the Company’s operating results. +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +11 +Table of Contents +In addition, our foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. Although the Company typically has sought to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have a material adverse effect on the Company’s business and results of operations. +Significant capacity constraints, production disruptions, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. There can be no assurance that the Company will not experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products and, as a result, its operating results are dependent on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases pigskin hides for its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, such as the 2015 labor dispute at west coast U.S. ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have a material adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success is directly dependent on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers +12 +Table of Contents +are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company’s consumer-direct operations have required, and will continue to require, a substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s consumer-direct operations, including its brick and mortar locations as well as its eCommerce and mobile channels, have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company has also made substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and employee-related costs. The success of our consumer-direct operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic, and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as damage its reputation and brands, and could materially affect the Company’s results of operations and financial position. +Expanding the Company’s brands into new markets and product categories and re-aligning its consumer-direct operations may be difficult and costly, and unsuccessful efforts to do so may adversely affect the Company’s brands and business. +As part of the Company’s growth strategy, it seeks to enhance the positioning of its brands, to extend its brands into complementary product categories and to expand geographically. There can be no assurance that the Company will be able to successfully implement any or all of these growth strategies, and unsuccessful efforts to do so could have an adverse effect on its results of operations and financial position. +Part of the future growth and profitability of the Company’s consumer-direct operations is significantly dependent on the Company’s ability to close underperforming stores and successfully develop its eCommerce and mobile platforms. The Company cannot be sure whether its eCommerce and mobile platforms will be successful, whether it will be able to terminate existing store leases in a cost-effective manner, or whether it will recapture lost sales from closed retail store locations through its wholesale, eCommerce or mobile businesses. The closure of stores and the failure to recapture sales from closed retail store locations could adversely impact the Company’s operations and financial position. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are highly dependent on future weather conditions and its ability to react to changes in weather conditions. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result +13 +Table of Contents +of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets affecting our distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could adversely impact the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact our third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet our consumers’ demands and, in turn, our results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have a material adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on earnings it considered to be permanently reinvested in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have a material adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. There can be no assurance that the final determination of any of these examinations will not have an adverse effect on the Company’s results of operations and financial position. +Failure of the Company’s third-party licensees and distributors to meet sales goals or to make timely payments on amounts owed to the Company could adversely affect the Company’s financial performance. +In many international markets, independent third-party licensees or distributors sell the Company’s products. Failure by the Company’s licensees or distributors to meet planned annual sales goals or to make timely payments on amounts owed to the Company could have an adverse effect on the Company’s business, results of operations and financial position. If a change in licensee or distributor becomes necessary, it may be difficult and costly to locate an acceptable substitute distributor or licensee and the Company may experience increased costs, as well as substantial disruption and a resulting loss of sales and brand equity in the market where such licensee or distributor operates. +The Company’s reputation and competitive position are dependent on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could receive negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 200 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts have created significant global economic and political uncertainties that may have material and adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and +14 +Table of Contents +exports, and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which the Company operates could have a material adverse effect on the Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in China or any other market in which the Company operates, or in its industry. +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Global capital markets could enter a period of severe disruption and instability, which could have a material adverse effect on debt and equity markets in the United States, which in turn could have a materially negative impact on the Company’s business, financial condition and results of operations. +The U.S. and global capital markets have experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may recur for a prolonged period of time or materially worsen in the future. +The Company may in the future have difficulty accessing capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels, European sovereign debt, Chinese economic slowdown or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations. +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive is dependent upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the licensor of any of these license agreements could have a material adverse effect on the Company’s business, results of operations and financial position. +The Company’s inability to attract and retain executive managers and other key employees, or the loss of one or more executive managers or other key employees, could adversely affect the Company’s business. +The Company depends on its executive management and other key employees. In the footwear, apparel and consumer-direct markets, competition for key executive talent is intense and the Company’s failure to identify, attract or retain executive managers or other key employees could adversely affect its business. The Company must offer and maintain competitive compensation packages to effectively recruit and retain such individuals. Further, the loss of one or more executive managers or other key +15 +Table of Contents +employees, or the Company’s failure to successfully implement succession planning, could adversely affect the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could substantially harm the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company strives to comply with all applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If so, the Company may suffer damage to its reputation and be subject to proceedings or actions against it by governmental entities or others. Any such proceeding or action could hurt the Company’s reputation, force it to spend significant amounts to defend its practices, distract its management, increase its costs of doing business, and result in monetary liability. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to ensure it remains in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease, its opportunities for growth may be curtailed by its compliance capabilities or reputational harm and its potential liability for security breaches may increase. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may distract the Company’s management team and require it to undertake costly and time consuming remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could result in loss of business. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions +16 +Table of Contents +could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be materially adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company has become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible material adverse impact on its financial condition and results of operations. While the Company maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses and would not remedy damage to its reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistic and distribution systems include computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. Therefore, its operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity is dependent on the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be materially adversely affected. +The Company’s business depends on effective marketing, advertising and promotional programs. +Consumer traffic and demand for our merchandise is influenced by the Company’s advertising, marketing and promotional activities, the name recognition and reputation of its brands. Although the Company uses marketing, advertising and promotional programs to attract consumers through various media, including social media, database marketing and print, our competitors may spend more or use different approaches, which could provide them with a competitive advantage. The Company’s promotional activity and other programs may not be effective, may be perceived negatively or could require increased expenditures, which could adversely impact the Company’s business, results of operations and financial position. +17 +Table of Contents +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company cannot provide assurance that it will be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but it may nonetheless incur material costs in the preliminary stages of such an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +Maintenance and growth of the Company’s business depends upon the availability of adequate capital. +The maintenance and growth of the Company’s business depends on the availability of adequate capital, which in turn depends in large part on cash flow generated by the Company’s business and the availability of equity and debt financing. The Company cannot provide assurance that its operations will generate positive cash flow or that it will be able to obtain equity or debt financing on acceptable terms, or at all. Further, the Company cannot provide assurance that it will be able to finance any expansion plans. +An impairment of goodwill or other intangibles could have an adverse material impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized, but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could materially affect the Company’s results of operations. +There is no assurance that the Company will be able to successfully implement its restructuring plans. +In 2017, 2016 and 2014, the Company initiated specific restructuring and organization transformation plans. There can be no assurance that the Company will successfully realize some or all of the estimated profitability improvements or other benefits from these plans. There is also no assurance that the Company will be able to re-invest any future cost savings generated from the plans into other initiatives or that any such investment will improve the Company’s operations. +Changes in government regulation may increase the Company’s costs of compliance and failure to comply with government regulations or other standards may adversely affect its brands and business. +The Company’s business is affected by changes in government and regulatory policies in the U.S. and in foreign jurisdictions. New requirements relating to product safety and testing and new environmental requirements, as well as changes in tax laws, duties, tariffs and quotas, could have a negative impact on the Company’s ability to produce and market footwear at competitive prices. Failure to comply with such regulations, as well as comply with ethical, social, product, labor and environmental standards, could also jeopardize the Company’s reputation and potentially lead to various adverse consumer actions, including boycotts. Any negative publicity about these types of concerns may reduce demand for the Company’s products. Damage to the Company’s reputation or loss of consumer confidence for any of these or other reasons could adversely affect the Company’s results of operations, as well as require additional resources to rebuild its reputation and brand value. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Various third parties could also bring actions against the Company alleging health-related or other harm arising from non-compliance. The +18 +Table of Contents +Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may in the course of business be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential hostile acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions that may be beneficial to the Company’s stockholders. +There are risks, including stock market volatility, inherent in owning the Company’s common stock. +The market price and volume of the Company’s common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on the Company’s results of operations and financial position, or a change in opinion in the market regarding the Company’s business prospects or other factors, many of which may be outside the Company’s immediate control. Changes in the amounts and frequency of share repurchases or dividends also could adversely affect the value of the Company’s common stock. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• +In the wholesale business, sales of footwear are dependent on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• +Wholesale customers set the delivery schedule for shipments of the Company’s products, which could cause shifts of sales between quarters. +• +Our estimated annual tax rate is based on projections of our domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• +Our earnings are also sensitive to a number of factors that are beyond the Company’s control, including manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates are based upon their own opinions and are often different from the Company’s estimates or expectations. If the Company’s operating results are below the estimates or expectations of public market analysts and investors, the Company’s stock price could decline. +19 +Table of Contents +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and there can be no assurance that the Company will satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +The Company’s results of operations, financial position, and cash flows, and its ability to conduct business in international markets may be affected by legal, regulatory, political, and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political, and economic risks. These include: +• +the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• +compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• +unexpected changes in regulatory requirements; and +• +new tariffs or other barriers in some international markets. +The Company is also subject to general political and economic risks in connection with our international operations, including: +• +political instability and terrorist attacks; +• +differences in business culture; +• +different laws governing relationships with employees and business partners; +• +changes in diplomatic and trade relationships; and +• +general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States or foreign countries upon the import or export of our products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition, or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have a material adverse effect on the Company’s business in the future or may require us to exit a particular market or significantly modify our current business practices. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company cannot be assured that the internal control policies and procedures currently in place will always protect it from reckless or criminal acts committed by our employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in a material adverse effect on the results of operations or financial condition. +20 +Table of Contents +Item 1B. +Unresolved Staff Comments +None. +Item 2. +Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 225,000 square feet in Rockford, Michigan, as well as a leased facility of approximately 136,000 square feet in Waltham, Massachusetts. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center of approximately 460,000 square feet in Howard City, Michigan; a leased distribution center of approximately 342,000 square feet in Ontario, Canada; an owned distribution center of approximately 305,000 square feet in Rockford, Michigan; and a leased distribution facility of approximately 200,000 square feet in Brookville, Ohio. +The Company also leases and owns various other offices and distribution centers throughout the U.S. to meet its operational requirements. In addition, the Company operates 81 retail stores through leases with various third-party landlords in the U.S. and Canada collectively occupying approximately 224,000 square feet. +The Company conducts its international operations in Canada, the United Kingdom, China, Hong Kong and continental Europe through leased distribution centers, offices and/or showrooms. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. +Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. A discussion of legal matters is found in Note 15 to the consolidated financial statements. +Item 4. +Mine Safety Disclosures +Not applicable. +Supplemental Item. Executive Officers of the Registrant +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of February 1, 2018. The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, they serve at the pleasure of management. +Name +Age +Positions held with the Company +Michael Jeppesen +58 +President, Global Operations Group and Wolverine Heritage Group +Amy M. Klimek +44 +Senior Vice President, Global Human Resources +Blake W. Krueger +64 +Chairman of the Board, Chief Executive Officer and President +Todd Spaletto +46 +President, Wolverine Outdoor & Lifestyle Group +Michael D. Stornant +51 +Senior Vice President, Chief Financial Officer and Treasurer +Richard J. Woodworth +60 +President, Wolverine Boston Group +James D. Zwiers +50 +Executive Vice President +Michael Jeppesen has served the Company as President, Global Operations Group since January 2012, and President, Wolverine Heritage Group since April 2016. From 2005 to 2011, he was Senior Vice President, Design and Sourcing, for Collective Brands, Inc., a wholesaler and retailer of footwear and related accessories. +Amy M. Klimek has served the Company as Senior Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. From 2006 to October 2014, she served as Director of Human Resources. +Blake W. Krueger has served the Company as Chairman since January 2010 and as Chief Executive Officer and President since April 2007. +Todd Spaletto has served the Company as President, Wolverine Outdoor & Lifestyle Group since February 2017. From February 2011 to January 2017, he was President, Americas for The North Face, Inc., a supplier of outdoor apparel, equipment and footwear. +21 +Table of Contents +Michael D. Stornant has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. From 2011 until January 2013, he served as Vice President and General Manager of Bates footwear. +Richard J. Woodworth has served the Company as President, Wolverine Boston Group since February 2016. From January 2016 to February 2016, he served as President, Lifestyle Group, which was realigned into the Wolverine Boston Group. From 2006 to 2015, he served as President, Saucony. +James D. Zwiers has served the Company as Executive Vice President since February 2017. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group. From March 2009 to June 2014, he served as Senior Vice President and President, Performance Group, which was realigned out of the Outdoor Group. +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The following table shows the high and low stock prices on the New York Stock Exchange and dividends declared by quarter for fiscal years 2017 and 2016 . The number of stockholders of record on February 16, 2018 , was 1,403. +Fiscal 2017 +Fiscal 2016 +Stock price +High +Low +High +Low +First quarter +$ +26.41 +$ +20.94 +$ +20.23 +$ +14.74 +Second quarter +28.11 +23.45 +20.70 +16.44 +Third quarter +29.20 +25.29 +25.54 +18.51 +Fourth quarter +32.05 +25.25 +25.31 +20.58 +Fiscal Year +Cash dividends declared per share +2017 +2016 +First quarter +$ +0.06 +$ +0.06 +Second quarter +0.06 +0.06 +Third quarter +0.06 +0.06 +Fourth quarter +0.06 +0.06 +A quarterly dividend of $0.08 per share was declared on February 8, 2018. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2018 . +The Company’s Credit Agreement and senior notes indenture impose certain restrictions on the Company’s ability to pay cash dividends. The Company may not pay a dividend if the Company is in default under the Credit Agreement or the indenture, or if payment of the dividend would cause a default under the Credit Agreement or the indenture, including the Company’s covenant to meet prescribed leverage ratios. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +22 +Table of Contents +Five-Year Cumulative Total Return Summary +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2017 . +Issuer Purchases of Equity Securities +Period +Total Number of Shares Purchased +Average Price Paid per Share +Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs +Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (October 1, 2017 to November 4, 2017) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +202,267,225 +Employee Transactions (2) +3,396 +$ +29.04 +Period 11 (November 5, 2017 to December 2, 2017) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +202,267,225 +Employee Transactions (2) +441 +$ +28.93 +Period 12 (December 3, 2017 to December 30, 2017) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +202,267,225 +Employee Transactions (2) +3,800 +$ +29.23 +Total for Fourth Quarter ended December 30, 2017 +Common Stock Repurchase Program (1) +— +$ +— +— +$ +202,267,225 +Employee Transactions (2) +7,637 +$ +29.12 +(1) +The Company’s Board of Directors approved a common stock repurchase program on August 8, 2016 that authorizes the repurchase of up to $ 300.0 million in common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement and senior notes indenture. +(2) +Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +23 +Table of Contents +Item 6. +Selected Financial Data +Five-Year Operating and Financial Summary (1) +Fiscal Year +(In millions, except per share data) +2017 +2016 +2015 +2014 +2013 +Summary of Operations +Revenue +$ +2,350.0 +$ +2,494.6 +$ +2,691.6 +$ +2,761.1 +$ +2,691.1 +Net earnings attributable to Wolverine World Wide, Inc. +0.3 +87.7 +122.8 +133.1 +100.4 +Net earnings per share of common stock: +Basic net earnings (2) +$ +— +$ +0.90 +$ +1.22 +$ +1.33 +$ +1.01 +Diluted net earnings (2) +— +0.89 +1.20 +1.30 +0.99 +Cash dividends declared +0.24 +0.24 +0.24 +0.24 +0.24 +Financial Position at Year-End +Total assets (3) +$ +2,399.0 +$ +2,431.7 +$ +2,434.4 +$ +2,491.3 +$ +2,604.4 +Debt (3)(4) +782.6 +820.7 +809.8 +887.6 +1,132.2 +(1) +This summary should be read in conjunction with the consolidated financial statements and the related notes, which are included in Item 8 of this Annual Report on Form 10-K. +(2) +Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for nonvested restricted common stock. Diluted earnings per share assume the exercise of dilutive stock options and the vesting of all outstanding restricted stock and units. +(3) +Total assets and Debt have been restated due to the adoption of ASU 2014-03 in fiscal 2016, which resulted in the reclassification of deferred financing costs from Deferred financing costs to Long-term debt. +(4) +Debt includes capital lease obligations. +24 +Table of Contents +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth .” The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 200 countries and territories at December 30, 2017 , including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At December 30, 2017 , the Company operated 81 retail stores in the U.S. and Canada and 29 consumer-direct websites. +2017 FINANCIAL OVERVIEW +• +Revenue for fiscal 2017 was $ 2,350.0 million , a decrease of 5.8% compared to fiscal 2016. The decrease reflects the closure of retail stores and the change in business model for Stride Rite ® ($159.3 million). The business model change for Stride Rite ® reflects the Company's transition to a global license arrangement for the brand effective during the third quarter of fiscal 2017. +• +Gross margin for fiscal 2017 was 38.9 %, an increase of 40 basis points from fiscal 2016. The gross margin increase was driven primarily by product cost decreases, which were partially offset by store closures, negative mix in international markets, and the negative impact of foreign exchange. +• +Operating expenses increased $90.5 million in fiscal 2017, to $ 890.5 million . The increase was driven by higher restructuring and other related costs, higher impairment of intangible assets, higher environmental and other related costs, higher organizational transformation costs, higher incentive compensation expense, and higher pension costs partially offset by lower selling expenses, lower retail store operating costs, lower advertising costs, and lower product development expenses. +• +The effective tax rate in fiscal 2017 was 93.7 % compared to 20.8 % in fiscal 2016. The higher effective tax rate in fiscal 2017 is due to higher expenses from restructuring activities in the U.S. resulting in a tax benefit, partially offset by incremental tax expense of $ 8.6 million related to the Tax Cuts and Jobs Act (“TCJA”). The TCJA net tax expense is comprised of $ 58.1 million related to the taxation of unremitted earnings of non-U.S. subsidiaries, which will be paid over eight years, and $ 3.0 million of other related taxes, partially offset by a non-cash adjustment of $ 52.5 million for the remeasurement of deferred tax balances at the new corporate tax rate of 21%. +• +Cash provided by operating activities was $202.7 million during fiscal 2017 compared to cash provided by operating activities of $ 296.3 million in fiscal 2016. The lower cash provided by operating activities in fiscal 2017 compared to fiscal 2016 was primarily due to higher cash payments for restructuring activities, a voluntary pension contribution and other changes in working capital. +• +Inventories were 20.6% lower at the end of fiscal 2017 compared to 2016. +• +The Company declared cash dividends of $ 0.24 per share, in both fiscal 2017 and fiscal 2016. +25 +Table of Contents +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +Percent Change vs. Prior Year +(In millions, except per share data) +2017 +2016 +2015 +2017 +2016 +Revenue +$ +2,350.0 +$ +2,494.6 +$ +2,691.6 +(5.8 +)% +(7.3 +)% +Cost of goods sold +1,426.6 +1,526.4 +1,636.9 +(6.5 +) +(6.8 +) +Restructuring costs +9.0 +8.3 +3.0 +8.4 +176.7 +Gross profit +914.4 +959.9 +1,051.7 +(4.7 +) +(8.7 +) +Selling, general and administrative expenses +713.7 +758.0 +816.0 +(5.8 +) +(7.1 +) +Restructuring and other related costs +72.9 +34.9 +29.5 +108.9 +18.3 +Impairment of intangible assets +68.6 +7.1 +5.1 +866.2 +39.2 +Environmental and other related costs +35.3 +— +— +— +— +Operating profit +23.9 +159.9 +201.1 +(85.1 +) +(20.5 +) +Interest expense, net +32.1 +34.8 +38.2 +(7.8 +) +(8.9 +) +Debt extinguishment and other costs +— +18.1 +1.6 +(100.0 +) +1,031.3 +Other expense (income), net +2.4 +(3.5 +) +(3.3 +) +(168.6 +) +6.1 +Earnings (loss) before income taxes +(10.6 +) +110.5 +164.6 +(109.6 +) +(32.9 +) +Income tax expense (benefit) +(9.9 +) +23.0 +41.4 +(143.0 +) +(44.4 +) +Net earnings (loss) +(0.7 +) +87.5 +123.2 +(100.8 +) +(29.0 +) +Less: net earnings (loss) attributable to noncontrolling interests +(1.0 +) +(0.2 +) +0.4 +400.0 +(150.0 +) +Net earnings attributable to Wolverine World Wide, Inc. +$ +0.3 +$ +87.7 +$ +122.8 +(99.7 +)% +(28.6 +)% +Diluted earnings per share +$ +— +$ +0.89 +$ +1.20 +(100.0 +)% +(25.8 +)% +REVENUE +Revenue was $2,350.0 million for fiscal 2017, representing a decrease of 5.8% versus the prior year's revenue of $2,494.6 million . The decrease reflects the closure of retail stores and the change in business model for Stride Rite ® ($159.3 million). International revenue represented 31.5 %, 28.2 % and 27.6 % of total reported revenues in fiscal years 2017, 2016 and 2015, respectively. Changes in foreign exchange rates decreased revenues by approximately $1.7 million in fiscal 2017. +Revenue was $2,494.6 million for fiscal 2016, representing a decrease of 7.3% versus the prior year's revenue of $2,691.6 million. The decrease reflects the closure of retail stores ($34.5 million), the negative impact of foreign exchange ($17.1 million), the exit of the Cushe ® business ($14.9 million) and lower demand for products within the Company's operating groups. +GROSS MARGIN +For fiscal 2017, the Company’s gross margin was 38.9 % compared to 38.5 % in fiscal 2016. The gross margin increase was driven primarily by product cost decreases (230 basis points), which were partially offset by store closures (90 basis points), negative mix in international markets (70 basis points), and the negative impact of foreign exchange (30 basis points). +For fiscal 2016, the Company’s gross margin was 38.5% compared to 39.1% in fiscal 2015. The gross margin decline was driven primarily by the negative impact of foreign exchange (70 basis points), store closures (50 basis points) and a negative mix shift in international markets (30 basis points), which were partially offset by product cost reductions. +OPERATING EXPENSES +Operating expenses increased $90.5 million in fiscal 2017, to $ 890.5 million . The increase was driven by higher restructuring and other related costs ($38.0 million), higher impairment of intangible assets ($61.5 million), higher environmental and other related costs ($35.3 million), higher organizational transformation costs ($35.6 million), higher incentive compensation expense ($12.9 million), and higher pension costs ($4.5 million) partially offset by lower selling expenses ($32.1 million), lower retail store operating costs ($52.2 million), and lower advertising costs ($12.3 million). +Operating expenses decreased $50.6 million in fiscal 2016, to $800.0 million. Operating expenses were favorably impacted by lower store operating costs ($18.0 million), lower pension expense ($17.5 million), lower advertising costs ($12.9 million), lower +26 +Table of Contents +selling expenses ($12.5 million) and the impact of foreign exchange ($6.3 million), which were partially offset by higher restructuring and other related costs ($5.4 million), higher impairment of intangible assets ($2.0 million), higher incentive compensation expense ($5.1 million) and organizational transformation costs ($2.2 million). +INTEREST, OTHER AND TAXES +Net interest expense was $ 32.1 million in fiscal 2017 compared to $ 34.8 million in fiscal 2016. The decrease was driven by a lower effective interest rate on the Company's debt, lower average debt principal balances and higher interest income. +Net interest expense was $34.8 million in fiscal 2016 compared to $38.2 million in fiscal 2015. The decrease was due primarily to the benefits of the Company's fiscal 2016 fourth quarter refinancing, which lowered the effective interest rate on the Company’s outstanding debt. +The Company incurred $18.1 million of debt extinguishment and other costs during fiscal 2016 in connection with the fourth quarter refinancing of the Company's debt. Debt extinguishment costs included a $13.1 million early redemption premium to retire the Company's previously outstanding Public Bonds, $4.0 million write-off of unamortized debt issuance costs and other costs associated with the refinancing. +On December 22, 2017, the TCJA was enacted which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. +The Company’s effective tax rates in fiscal 2017 and fiscal 2016 were 93.7 % and 20.8 %, respectively. The higher effective tax rate in fiscal 2017 is due to higher expenses from restructuring activities in the U.S. resulting in a tax benefit, partially offset by incremental tax expense of $ 8.6 million related to TCJA. The TCJA net tax expense is comprised of $ 58.1 million related to the taxation of unremitted earnings of non-U.S. subsidiaries, which will be paid over eight years, and $ 3.0 million of other related taxes, partially offset by a non-cash adjustment of $ 52.5 million for the remeasurement of deferred tax balances at the new corporate tax rate of 21%. +The Company’s effective tax rates in fiscal 2016 and fiscal 2015 were 20.8% and 25.2%, respectively. The lower effective tax rate in fiscal 2016 reflects more favorable discrete items compared to fiscal 2015. +REPORTABLE OPERATING SEGMENTS +The Company’s portfolio of brands is organized into the following four operating segments, which the Company has determined to be reportable operating segments. During the second quarter of fiscal 2017, the components within the Wolverine Multi-Brand Group were realigned as the Company transitioned Stride Rite ® to a global license arrangement, which was effective on July 2, 2017. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear, Sebago ® footwear and apparel and Cushe ® footwear in fiscal 2015; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of the Company’s Children’s footwear business and the Company's multi-brand consumer-direct businesses. The Children’s footwear business includes Stride Rite ® , as well as children’s footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs, and environmental and other related costs. +27 +Table of Contents +The reportable operating segment results for fiscal years 2017 , 2016 and 2015 are as follows: +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2017 +2016 +Change +2016 +2015 +Change +REVENUE +Wolverine Outdoor & Lifestyle Group +$ +947.1 +$ +890.6 +$ +56.5 +6.3 +% +$ +890.6 +$ +957.5 +$ +(66.9 +) +(7.0 +)% +Wolverine Boston Group +833.8 +889.4 +(55.6 +) +(6.3 +) +889.4 +942.8 +(53.4 +) +(5.7 +) +Wolverine Heritage Group +327.9 +347.0 +(19.1 +) +(5.5 +) +347.0 +370.5 +(23.5 +) +(6.3 +) +Wolverine Multi-Brand Group +166.9 +304.3 +(137.4 +) +(45.2 +) +304.3 +351.2 +(46.9 +) +(13.4 +) +Other +74.3 +63.3 +11.0 +17.4 +63.3 +69.6 +(6.3 +) +(9.1 +) +Total +$ +2,350.0 +$ +2,494.6 +$ +(144.6 +) +(5.8 +)% +$ +2,494.6 +$ +2,691.6 +$ +(197.0 +) +(7.3 +)% +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2017 +2016 +Change +2016 +2015 +Change +OPERATING PROFIT (LOSS) +Wolverine Outdoor & Lifestyle Group +$ +193.2 +$ +166.8 +$ +26.4 +15.8 +% +$ +166.8 +$ +197.7 +$ +(30.9 +) +(15.6 +)% +Wolverine Boston Group +139.1 +121.7 +17.4 +14.3 +121.7 +132.9 +(11.2 +) +(8.4 +) +Wolverine Heritage Group +53.3 +50.8 +2.5 +4.9 +50.8 +54.6 +(3.8 +) +(7.0 +) +Wolverine Multi-Brand Group +10.5 +4.8 +5.7 +118.8 +4.8 +5.2 +(0.4 +) +(7.7 +) +Other +6.4 +5.5 +0.9 +16.4 +5.5 +5.6 +(0.1 +) +(1.8 +) +Corporate +(378.6 +) +(189.7 +) +(188.9 +) +99.6 +(189.7 +) +(194.9 +) +5.2 +2.7 +Total +$ +23.9 +$ +159.9 +$ +(136.0 +) +(85.1 +)% +$ +159.9 +$ +201.1 +$ +(41.2 +) +(20.5 +)% +Further information regarding the reportable operating segments can be found in Note 16 to the consolidated financial statements. +Wolverine Outdoor & Lifestyle Group +The Outdoor & Lifestyle Group’s revenue increased $ 56.5 million , or 6.3 %, in fiscal 2017 compared to fiscal 2016. The increase was due partially to a mid single digit revenue increase for Merrell ® , a low teens increase for Cat ® and a mid teens increase for Chaco ® partially offset by a low teens revenue decline for Hush Puppies ® . The Merrell ® increase was due to expansion into the work category and eCommerce growth partially offset by the closure of retail stores. The Cat ® increase was due to a business model change in certain international markets as well as growth in the U.S. The Chaco ® increase was driven by growth in the brand's sandal products within the U.S. market. The Hush Puppies ® decrease was due to the exit of certain markets in Europe and a strategic move away from lower margin customers in the U.S. and Canada. +The Outdoor & Lifestyle Group’s operating profit increased $ 26.4 million , or 15.8 %, in fiscal 2017 compared to fiscal 2016. The operating profit increase was due primarily to the revenue increase for Merrell ® , lower selling, general and administrative expenses for the Group due to the exit of certain businesses in Europe and headcount reductions, partially offset by higher advertising costs for Chaco ® . +The Outdoor & Lifestyle Group’s revenue decreased $66.9 million, or 7.0%, in fiscal 2016 compared to fiscal 2015. The decline was partially due to a high single digit revenue decline for Merrell ® , the exit of the Cushe ® business, a mid single-digit decrease for Cat ® and a high single digit revenue decline for Hush Puppies ® , which were partially offset by a mid-twenties increase for Chaco ® . The Merrell ® decrease was due to lower demand in the U.S. reflecting continued challenges in the retail environment, customer bankruptcies, the strategic decision to exit the apparel wholesale channel and the negative impact of foreign exchange. This was partially offset by a low thirties growth rate for eCommerce. The Cat ® decline was due to lower demand in the U.S. and EMEA due to a soft retail market, declines in the oil industry and changes in foreign exchange rates which were partially offset by growth in Latin America. The Hush Puppies ® decrease was due to challenging trading conditions in Europe and the negative impact of foreign exchange rate changes. The Chaco ® increase was driven by growth in the brand's sandal products within the U.S. market. +The Outdoor & Lifestyle Group’s operating profit decreased $30.9 million, or 15.6%, in fiscal 2016 compared to fiscal 2015. The operating profit decrease was due primarily to the revenue and gross margin decreases for Merrell ® and Cat ® . The gross margin +28 +Table of Contents +decreases were due to unfavorable foreign currency forward contracts. These decreases were partially offset by the revenue increase from Chaco ® and higher gross margin from Chaco ® due to more favorable product costs and fewer closeout sales. +Wolverine Boston Group +The Boston Group’s revenue decreased $ 55.6 million , or 6.3 %, in fiscal 2017 compared to fiscal 2016. The decline was driven by high single-digit declines from Sperry ® and Keds ® . The Sperry ® decrease was due to lower wholesale demand for its core boat products and the closure of retail stores. The Keds ® decrease was due to the intentional exit of certain unprofitable points of distribution in the U.S. wholesale market. +The Boston Group’s operating profit increased $ 17.4 million , or 14.3 %, in fiscal 2017 compared to fiscal 2016. The increase was due primarily to higher gross margin for Saucony ® and Keds ® and lower selling, general and administrative expenses due to lower advertising spend and headcount reductions within the Group. +The Boston Group’s revenue decreased $53.4 million, or 5.7%, in fiscal 2016 compared to fiscal 2015. The decline was driven by a high single-digit decline from Sperry ® and a mid single-digit decline from Saucony ® . The Sperry ® decrease was due to lower wholesale demand for its core boat products, partially offset by growth in the boot product category. The Saucony ® decrease was due to challenges within the U.S. wholesale business including lower demand for products, certain customer bankruptcies and the unfavorable impact of changes in foreign currency exchange rates. This was partially offset by high single-digit growth in EMEA. +The Boston Group’s operating profit decreased $11.2 million, or 8.4%, in fiscal 2016 compared to fiscal 2015. The decrease was due primarily to the revenue declines and lower gross margin for Saucony ® due to negative foreign exchange impact and product mix, partially offset by higher operating profit from Keds ® due to lower advertising spend. +Wolverine Heritage Group +The Heritage Group’s revenue decreased $ 19.1 million , or 5.5 %, in fiscal 2017 compared to fiscal 2016. The revenue decline was primarily the result of a mid twenties decline from Bates ® , which was driven by decreases in the domestic contract business as well as the sale of the Department of Defense contract business in the third quarter of 2017. +The Heritage Group’s operating profit increased $ 2.5 million , or 4.9 %, in fiscal 2017 compared to fiscal 2016. The operating profit increase was due primarily to the improved margins for the Wolverine ® and HyTest ® brands and fewer contracts from the low margin Department of Defense contract business. +The Heritage Group’s revenue decreased $23.5 million, or 6.3%, in fiscal 2016 compared to fiscal 2015. The revenue decline was the result of a low-teens decline from Wolverine ® , a mid-teens decline from Harley Davidson ® , partially offset by mid-teens growth from Bates ® . The Wolverine ® decline was due to lower demand in the U.S. due to a soft retail market and declines in the oil industry. The Harley Davidson ® decline was due to sluggish motorcycle sales in the U.S., which negatively impacted the Harley Davidson ® dealer network. The Bates ® increase was driven by increases in its domestic contract business. +The Heritage Group’s operating profit decreased $3.8 million, or 7.0%, in fiscal 2016 compared to fiscal 2015. The operating profit decrease was due primarily to the revenue decreases within the group. +Wolverine Multi-Brand Group +The Multi-Brand Group’s revenue decreased $ 137.4 million , or 45.2 %, in fiscal 2017 compared to fiscal 2016. The revenue decline was due to the closure of retail stores and the change in operating model for the Stride Rite ® brand. The Multi-Brand Group’s operating profit increased $ 5.7 million , or 118.8 %, in fiscal 2017 compared to fiscal 2016 due to the closure of unprofitable stores. +The Multi-Brand Group’s revenue decreased $46.9 million, or 13.4%, in fiscal 2016 compared to fiscal 2015. The revenue decline was due to the closure of retail stores and lower Stride Rite ® U.S. wholesale revenues. The Multi-Brand Group’s operating profit decreased $0.4 million, or 7.7%, in fiscal 2016 compared to fiscal 2015. +Corporate +Corporate expenses increased $188.9 million in fiscal 2017 compared to fiscal 2016. Corporate expenses were impacted by the increase in restructuring and other related costs ($38.7 million), higher impairment of intangible assets ($61.5 million), higher organizational transformation costs ($35.6 million), higher environmental and other related costs ($35.3 million), higher incentive compensation expenses ($12.9 million) and higher pension costs ($4.5 million). +Corporate expenses decreased $5.2 million in fiscal 2016 compared to fiscal 2015. Corporate expenses were favorably impacted by lower pension expense ($17.5 million), which were partially offset by higher restructuring and other related costs ($5.4 million) and higher impairment of intangible assets ($2.0 million), higher incentive compensation expense ($5.1 million) and organizational transformation costs ($2.2 million). +29 +Table of Contents +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) +2017 +2016 +2015 +Cash and cash equivalents +$ +481.0 +$ +369.8 +$ +194.1 +Debt (1) +782.6 +820.7 +809.8 +Available revolving credit facility (2) +597.5 +597.4 +496.2 +Net cash provided by operating activities +202.7 +296.3 +215.5 +Net cash used in investing activities +(1.0 +) +(38.4 +) +(50.0 +) +Net cash used in financing activities +(98.0 +) +(79.5 +) +(187.3 +) +Additions to property, plant and equipment +32.4 +55.3 +46.4 +Depreciation and amortization +37.2 +43.5 +48.7 +(1) +Debt includes capital lease obligations. +(2) +Amounts are net of both borrowings, if any, and outstanding standby letters of credit in accordance with the terms of the revolving credit facility. +Liquidity +Cash and cash equivalents of $ 481.0 million as of December 30, 2017 were $ 111.2 million higher compared to December 31, 2016 . The Company had $ 597.5 million available under a revolving credit agreement (the “Revolving Credit Facility”) as of December 30, 2017 . +Cash flow from operating activities, along with borrowings on the Revolving Credit Facility, if any, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities are expected to be used to fund organic growth initiatives, reduce debt, pay dividends, repurchase the Company’s common stock and pursue acquisitions. +As a result of the TCJA, the Company has recorded a liability of $ 58.1 million related to the taxation of unremitted earnings of non-U.S. subsidiaries, which will be paid over eight years. The Company does not expect this to have a material impact on its current or future liquidity. +A detailed discussion of environmental remediation costs is found in Note 15 to the consolidated financial statements. As of December 30, 2017, the Company has recorded a liability of $ 31.1 million related to environmental remediation costs based upon an evaluation of currently available facts with respect to each individual site. Of this amount, $ 12.5 million is expected to be paid in fiscal 2018 and is recorded in other accrued liabilities with the remaining $ 18.6 million recorded in other liabilities and is expected to be paid over the course of thirty years. The Company's remediation activity at its former tannery site and sites where the Company disposed of tannery byproducts is largely ongoing and in the early stages. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during fiscal 2017 was lower compared to fiscal 2016 due primarily to higher cash payments for restructuring activities of $45.4 million, changes in deferred income taxes of $ 75.8 million due to the impact of the TCJA and higher pension contributions of $9.8 million in addition to changes in working capital. During fiscal 2017 working capital balances drove a source of cash of $113.3 million, which primarily was driven by the favorable impact of lower inventories of $45.4 million and increases to accounts payable, income taxes payable and other operating liabilities of $11.2 million, $46.1 million and 13.0 million, respectively. +Cash from operations during fiscal 2016 was higher compared to fiscal 2015 due primarily to improvements in working capital balances compared to fiscal 2015, partially offset by lower earnings performance. During fiscal 2016 working capital balances drove a source of cash of $98.0 million, which primarily was driven by the favorable impact of lower inventories and accounts receivable of $110.0 million and $32.3 million, respectively, partially offset by a decrease in accounts payable of $50.4 million. +30 +Table of Contents +Investing Activities +The Company made capital expenditures of $ 32.4 million , $ 55.3 million and $ 46.4 million in fiscal years 2017 , 2016 and 2015 , respectively. The higher capital expenditures during fiscal 2016 was due primarily to building improvements for the Company's new Boston office and west coast distribution center. The majority of the Company's capital expenditures in all three years were for building improvements and information system enhancements. +During fiscal 2017, the Company received proceeds of $38.6 million related to the sale of a business and other assets. During fiscal 2016, the Company received proceeds of $7.8 million for the sale of a non-core business. +Financing Activities +On September 15, 2016, the Company amended its credit agreement (as amended, the "Credit Agreement"). The Credit Agreement provided a $ 588.8 million term loan facility (“Term Loan A”) and a $ 600.0 million revolving credit facility (the “Revolving Credit Facility”), both with maturity dates of July 13, 2020. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met. Term Loan A requires quarterly principal payments with a balloon payment due on July 13, 2020. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $600.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Credit Facility of $ 2.5 million and $ 2.6 million as of December 30, 2017 and December 31, 2016 , respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +As of December 30, 2017 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.00% with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company’s debt at December 30, 2017 totaled $ 782.6 million compared to $ 820.7 million at December 31, 2016 . The decrease is due to scheduled principal payments on Term Loan A. The net increase in debt during fiscal 2016 of $10.9 million was primarily a result of net incremental borrowings from the fiscal 2016 refinancing activities less principal payments on the Term Loan A Facility. +The Company has various foreign revolving credit facilities with aggregate available borrowings of $ 4.0 million that are uncommitted and, therefore, each borrowing against the applicable facility is subject to approval by the lender. Borrowings against these facilities were $ 0.5 million as of December 30, 2017 . +The Company repurchased $ 42.3 million , $ 61.9 million and $ 92.6 million of Company common stock in fiscal years 2017 , 2016 and 2015 , respectively, under stock repurchase plans. The Company may purchase up to an additional $ 202.3 million of shares under its existing common stock repurchase program that expires in 2020, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement. In addition to the stock repurchase program activity, the Company acquired $ 5.5 million , $ 4.9 million and $ 7.7 million of shares in fiscal years 2017 , 2016 and 2015 , respectively, in connection with employee transactions related to stock incentive plans. +The Company declared cash dividends of $0.24 per share in fiscal years 2017 , 2016 and 2015 . Dividends paid totaled $ 23.0 million , $ 23.5 million and $ 24.4 million , for fiscal years 2017 , 2016 and 2015 , respectively. A quarterly dividend of $0.08 per share was declared on February 8, 2018 to shareholders of record on April 2, 2018. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2018 which will increase dividends paid by approximately $5.3 million in 2018. +NEW ACCOUNTING STANDARDS +Refer to Note 2 of the consolidated financial statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES +The preparation of the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. +31 +Table of Contents +Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s consolidated financial statements. +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances for the relevant periods may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, an adjustment to net revenues would be recorded in the period the determination was made. +Accounts Receivable +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers' failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. Historically, losses have been within the Company’s expectations. Adjustments to these estimates may be required if the financial condition of the Company’s customers were to change. If the Company were to determine adjustments to the allowance for uncollectible accounts were appropriate, the Company would record either an increase or decrease to general and administrative expenses in the period in which the Company made such a determination. +Inventory +The Company values its inventory at the lower of cost or market. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or market for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated market value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company performs the second step of the goodwill impairment test to determine the impairment charge, if any. The second step involves a hypothetical allocation of the estimated fair value of the reporting unit to its net tangible and intangible assets (excluding goodwill) as if the reporting unit were newly +32 +Table of Contents +acquired, which results in an implied fair value of the goodwill. The amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. In the fourth quarter of fiscal 2017, as a result of its annual impairment testing, the Company recorded a $ 68.6 million impairment charge for the Sperry ® trade name. In the fourth quarter of fiscal 2016 and fiscal 2015, as a result of its testing, the Company recorded a $ 7.1 million and $2.5 million impairment charge, respectively, for the Stride Rite ® trade name. The Company did not recognize any impairment charges for goodwill during fiscal years 2017 , 2016 and 2015 . +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. The Company recorded impairment charges of $ 11.0 million , $ 12.2 million and $ 11.6 million during fiscal years 2017 , 2016 and 2015 , respectively, related to certain retail store assets where the estimated future cash flows did not support the net book value of the assets. +Environmental +Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Liabilities related to estimated remediation costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the fiscal year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +On December 22, 2017, the U.S. enacted the TCJA, which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. +33 +Table of Contents +Other significant changes to U.S. income taxes resulting from TCJA will be reflected in the Company’s first quarter of 2018. In addition to the reduction of the corporate tax rate, changes in the taxation of foreign earnings and the deductibility of expenses are still being evaluated by the Company and could have a material impact on the company’s effective tax rate. +Concurrent with the enactment of the tax reform legislation on December 22, 2017, the SEC staff issued guidance in Staff Accounting Bulletin 118 ("SAB 118") to address concerns regarding the ability of a reporting entity to timely comply with the accounting requirements to recognize all the effects of the Act in the period of enactment. Under SAB 118, the Company has up to 12 months from the enactment date to complete the accounting for some or all of the income tax effects triggered by the enactment of the law. The Company has recorded a provisional estimate of the expected tax liability as required under SAB 118 and intends to finalize the computations on or before the due date of the U.S. corporate tax return in October 2018. +As a result of the TCJA, the Company now intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent fiscal year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 3.80 % at December 30, 2017 , compared to 4.35 % at December 31, 2016 . Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 7.00% for fiscal 2018. This determination is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +OFF-BALANCE SHEET ARRANGEMENTS +The Company has no off-balance sheet arrangements as of December 30, 2017 . +CONTRACTUAL OBLIGATIONS +As of December 30, 2017 , the Company had the following payments under contractual obligations due by period: +(In millions) +Total +Less than +1 year +1-3 years +3-5 years +More than +5 years +Long-term debt obligations (1) +$ +937.0 +$ +67.6 +$ +548.6 +$ +25.0 +$ +295.8 +Capital lease obligations +0.5 +0.1 +0.3 +0.1 +— +Operating lease obligations +257.4 +31.2 +57.0 +48.4 +120.8 +Purchase obligations (2) +277.9 +277.9 +— +— +— +Pension (3) +1.7 +1.7 +— +— +— +Supplemental Executive Retirement Plan +39.6 +3.7 +7.7 +7.8 +20.4 +Deferred compensation +2.1 +0.4 +0.9 +0.5 +0.3 +Dividends declared +5.9 +5.9 +— +— +— +Minimum royalties +4.4 +1.4 +3.0 +— +— +Minimum advertising +22.4 +2.9 +6.1 +6.5 +6.9 +Total (4) +$ +1,548.9 +$ +392.8 +$ +623.6 +$ +88.3 +$ +444.2 +34 +Table of Contents +(1) +Includes principal and interest payments on the Company’s long-term debt, net of the impact of an interest rate swap. Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 30, 2017 . Actual cash outflows may differ significantly due to changes in underlying interest rates. See Note 9 to the consolidated financial statements for additional information on the Company's interest rate swap. +(2) +Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) +Pension obligations reflect expected pension funding, which is the amount of required funding obligations under government regulation. Funding amounts are calculated on an annual basis and no required or planned funding beyond one year has been determined. +(4) +The total amount of unrecognized tax benefits on the consolidated balance sheet at December 30, 2017 is $ 9.3 million . At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. +Under the provisions of Financial Accounting Standards Board (“FASB") Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging ("ASC 815"), the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Colombia, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Colombian peso, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At December 30, 2017 and December 31, 2016 , the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $ 162.7 million and $ 171.3 million , respectively, with maturities ranging up to 356 days. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies, but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. The Company has a cross currency swap which has been designated as a hedge of a net investment in a foreign operation. The hedge has a notional amount of $ 106.4 million and will mature on September 1, 2021 . At December 30, 2017 , a weaker U.S. dollar compared to certain foreign currencies increased the value of these investments in net assets by $ 20.8 million from their value at December 31, 2016 . At December 31, 2016 , a stronger U.S. dollar compared to foreign currencies decreased the value of these investments in net assets by $ 6.2 million from their value at January 2, 2016 . +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on borrowings used to finance acquisitions and working capital requirements. The Company’s total variable-rate debt was $ 538.1 million at December 30, 2017 and the Company held one interest rate swap agreement denominated in U.S. dollars that effectively convert $ 446.9 million to fixed-rate debt. The interest rate swap derivative instrument is held and used by the Company as a tool for managing interest rate risk. The +35 +Table of Contents +counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be a net liability of $ 0.3 million at the end of fiscal 2017 . As of December 30, 2017 , the weighted-average interest rate on the Company’s variable-rate debt, net of the impact of the interest rate swap, was 3.05 %. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $ 0.9 million . +The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +36 +Table of Contents +Item 8. +Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +38 +Consolidated Statements of Comprehensive Income +39 +Consolidated Balance Sheets +40 +Consolidated Statements of Cash Flows +42 +Consolidated Statements of Stockholders' Equity +44 +Note 1. Summary of Significant Accounting Policies +46 +Note 2. New Accounting Standards +48 +Note 3. Earnings Per Share +50 +Note 4. Goodwill and Other Intangibles +51 +Note 5. Accounts Receivable +53 +Note 6. Inventories +53 +Note 7. Debt +53 +Note 8. Property, Plant and Equipment and Operating Leases +54 +Note 9. Derivative Financial Instruments +55 +Note 10. Stock-Based Compensation +56 +Note 11. Retirement Plans +58 +Note 12. Income Taxes +61 +Note 13. Accumulated Other Comprehensive Income (Loss) +63 +Note 14. Fair Value Measurements +64 +Note 15. Litigation and Contingencies +65 +Note 16. Business Segments +67 +Note 17. Restructuring Activities +69 +Note 18. Divestitures +72 +Note 19. Quarterly Results of Operations (Unaudited) +73 +Reports of Independent Registered Public Accounting Firm +74 +37 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) +2017 +2016 +2015 +Revenue +$ +2,350.0 +$ +2,494.6 +$ +2,691.6 +Cost of goods sold +1,426.6 +1,526.4 +1,636.9 +Restructuring costs +9.0 +8.3 +3.0 +Gross profit +914.4 +959.9 +1,051.7 +Selling, general and administrative expenses +713.7 +758.0 +816.0 +Restructuring and other related costs +72.9 +34.9 +29.5 +Impairment of intangible assets +68.6 +7.1 +5.1 +Environmental and other related costs +35.3 +— +— +Operating profit +23.9 +159.9 +201.1 +Other expenses: +Interest expense, net +32.1 +34.8 +38.2 +Debt extinguishment and other costs +— +18.1 +1.6 +Other expense (income), net +2.4 +(3.5 +) +(3.3 +) +Total other expenses +34.5 +49.4 +36.5 +Earnings (loss) before income taxes +(10.6 +) +110.5 +164.6 +Income tax expense (benefit) +(9.9 +) +23.0 +41.4 +Net earnings (loss) +(0.7 +) +87.5 +123.2 +Less: net earnings (loss) attributable to noncontrolling interests +(1.0 +) +(0.2 +) +0.4 +Net earnings attributable to Wolverine World Wide, Inc. +$ +0.3 +$ +87.7 +$ +122.8 +Net earnings per share (see Note 3): +Basic +$ +— +$ +0.90 +$ +1.22 +Diluted +$ +— +$ +0.89 +$ +1.20 +See accompanying notes to consolidated financial statements. +38 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income +Fiscal Year +(In millions) +2017 +2016 +2015 +Net earnings (loss) +$ +(0.7 +) +$ +87.5 +$ +123.2 +Other comprehensive income (loss), net of tax: +Foreign currency translation adjustments +21.1 +(6.6 +) +(31.8 +) +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $(7.0), $1.9 and $2.7 +(16.0 +) +3.5 +6.6 +Reclassification adjustments included in net earnings (loss), net of taxes of $(0.3), $(1.7) and $(5.3) +(0.7 +) +(4.7 +) +(11.6 +) +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $(3.3), $(11.2) and $8.2 +(6.0 +) +(20.8 +) +15.2 +Amortization of prior actuarial losses, net of taxes of $3.5, $1.7 and $7.3 +6.3 +3.2 +13.5 +Curtailment gain arising during the period, net of taxes of $0.8 +1.5 +— +— +Amortization of prior service cost +— +0.1 +0.1 +Settlement gain included in net earnings (loss) +— +(0.1 +) +— +Other comprehensive income (loss) +6.2 +(25.4 +) +(8.0 +) +Less: other comprehensive income (loss) attributable to noncontrolling interests +0.3 +(0.4 +) +(1.4 +) +Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. +5.9 +(25.0 +) +(6.6 +) +Comprehensive income +5.5 +62.1 +115.2 +Less: comprehensive loss attributable to noncontrolling interest +(0.7 +) +(0.6 +) +(1.0 +) +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +6.2 +$ +62.7 +$ +116.2 +See accompanying notes to consolidated financial statements. +39 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) +December 30, +2017 +December 31, +2016 +ASSETS +Current assets: +Cash and cash equivalents +$ +481.0 +$ +369.8 +Accounts receivable, less allowances: +December 30, 2017 – $31.5 +December 31, 2016 – $39.4 +271.3 +263.3 +Inventories: +Finished products, net +265.2 +333.7 +Raw materials and work-in-process, net +11.5 +15.0 +Total inventories +276.7 +348.7 +Prepaid expenses and other current assets +45.3 +49.6 +Total current assets +1,074.3 +1,031.4 +Property, plant and equipment: +Gross cost +391.1 +434.0 +Accumulated depreciation +(254.4 +) +(287.9 +) +Property, plant and equipment, net +136.7 +146.1 +Other assets: +Goodwill +429.8 +424.3 +Indefinite-lived intangibles +604.5 +678.5 +Amortizable intangibles, net +77.0 +83.8 +Deferred income taxes +4.3 +2.3 +Other +72.4 +65.3 +Total other assets +1,188.0 +1,254.2 +Total assets +$ +2,399.0 +$ +2,431.7 +See accompanying notes to consolidated financial statements. +40 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets – continued +(In millions, except share data) +December 30, +2017 +December 31, +2016 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +162.3 +$ +150.8 +Accrued salaries and wages +40.0 +30.8 +Other accrued liabilities +122.0 +111.7 +Current maturities of long-term debt +37.5 +37.5 +Borrowings under revolving credit agreements and other short-term notes +0.5 +2.9 +Total current liabilities +362.3 +333.7 +Long-term debt, less current maturities +744.6 +780.3 +Accrued pension liabilities +142.2 +143.1 +Deferred income taxes +84.2 +161.0 +Other liabilities +110.5 +39.5 +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity: +Common stock – par value $1, authorized 320,000,000 shares; shares issued (including shares in treasury): +December 30, 2017 – 106,405,449 shares +December 31, 2016 – 105,647,040 shares +106.4 +105.6 +Additional paid-in capital +149.2 +103.2 +Retained earnings +992.2 +1,015.1 +Accumulated other comprehensive loss +(75.2 +) +(81.1 +) +Cost of shares in treasury: +December 30, 2017 – 10,345,141 shares +December 31, 2016 – 8,522,425 shares +(223.0 +) +(176.3 +) +Total Wolverine World Wide, Inc. stockholders’ equity +949.6 +966.5 +Noncontrolling interest +5.6 +7.6 +Total stockholders’ equity +955.2 +974.1 +Total liabilities and stockholders’ equity +$ +2,399.0 +$ +2,431.7 +See accompanying notes to consolidated financial statements. +41 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow +Fiscal Year +(In millions) +2017 +2016 +2015 +OPERATING ACTIVITIES +Net earnings (loss) +$ +(0.7 +) +$ +87.5 +$ +123.2 +Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: +Depreciation and amortization +37.2 +43.5 +48.7 +Deferred income taxes +(75.8 +) +(5.8 +) +(26.7 +) +Stock-based compensation expense +25.4 +22.8 +18.7 +Excess tax benefits from stock-based compensation +— +(0.6 +) +(4.9 +) +Pension contribution +(11.3 +) +(1.5 +) +— +Pension and SERP expense +14.9 +10.4 +27.9 +Debt extinguishment costs +— +17.4 +1.6 +Restructuring and other related costs +81.9 +43.2 +32.5 +Cash payments related to restructuring costs +(64.8 +) +(19.4 +) +(10.3 +) +Impairment of intangible assets +68.6 +7.1 +5.1 +Environmental and other related costs, net of cash payments +32.3 +— +— +Net gain on sale of a business and other assets +(7.0 +) +— +— +Other +(11.3 +) +(6.3 +) +(2.0 +) +Changes in operating assets and liabilities: +Accounts receivable +(2.7 +) +32.3 +5.8 +Inventories +45.4 +110.0 +(68.8 +) +Other operating assets +0.3 +2.3 +14.6 +Accounts payable +11.2 +(50.4 +) +52.9 +Income taxes +46.1 +1.0 +(1.2 +) +Other operating liabilities +13.0 +2.8 +(1.6 +) +Net cash provided by operating activities +202.7 +296.3 +215.5 +INVESTING ACTIVITIES +Additions to property, plant and equipment +(32.4 +) +(55.3 +) +(46.4 +) +Proceeds from sale of a business and other assets +38.6 +7.8 +— +Investment in joint venture +(2.1 +) +(0.5 +) +— +Other +(5.1 +) +9.6 +(3.6 +) +Net cash used in investing activities +(1.0 +) +(38.4 +) +(50.0 +) +FINANCING ACTIVITIES +Net borrowings (payments) under revolving credit agreements and other short-term notes +(2.6 +) +3.1 +— +Borrowings of long-term debt +— +400.0 +450.0 +Payments on long-term debt +(37.5 +) +(393.8 +) +(530.9 +) +Payments of debt issuance and debt extinguishment costs +(0.1 +) +(17.9 +) +(2.4 +) +Cash dividends paid +(23.0 +) +(23.5 +) +(24.4 +) +Purchase of common stock for treasury +(51.5 +) +(52.7 +) +(92.6 +) +Purchases of shares under employee stock plans +(5.5 +) +(4.9 +) +(7.7 +) +Proceeds from the exercise of stock options +21.4 +7.4 +13.3 +Excess tax benefits from stock-based compensation +— +0.6 +4.9 +Contributions from noncontrolling interests +0.8 +2.2 +2.5 +Net cash used in financing activities +(98.0 +) +(79.5 +) +(187.3 +) +Effect of foreign exchange rate changes +7.5 +(2.7 +) +(7.9 +) +Increase (decrease) in cash and cash equivalents +111.2 +175.7 +(29.7 +) +Cash and cash equivalents at beginning of the year +369.8 +194.1 +223.8 +Cash and cash equivalents at end of the year +$ +481.0 +$ +369.8 +$ +194.1 +See accompanying notes to consolidated financial statements. +42 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow – continued +Fiscal Year +(In millions) +2017 +2016 +2015 +OTHER CASH FLOW INFORMATION +Interest paid +$ +31.5 +$ +33.7 +$ +34.9 +Net income taxes paid +23.6 +35.4 +49.8 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid +0.8 +1.7 +— +Purchase of common stock for treasury not yet paid +— +9.2 +— +See accompanying notes to consolidated financial statements. +43 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at January 3, 2015 +$ +102.3 +$ +40.1 +$ +852.2 +$ +(49.5 +) +$ +(11.6 +) +$ +4.5 +$ +938.0 +Net earnings +122.8 +0.4 +123.2 +Other comprehensive loss +(6.6 +) +(1.4 +) +(8.0 +) +Shares issued under stock incentive plans, net of forfeitures (721,621 shares) +0.7 +(0.7 +) +— +Shares issued for stock options exercised, net (941,157 shares) +0.9 +12.4 +13.3 +Stock-based compensation expense +18.7 +18.7 +Income tax benefits from stock incentive plans +5.4 +5.4 +Cash dividends declared ($0.24 per share) +(24.2 +) +(24.2 +) +Issuance of treasury shares (40,016 shares) +— +1.1 +1.1 +Purchase of common stock for treasury (4,804,665 shares) +(92.6 +) +(92.6 +) +Purchases of shares under employee stock plans (276,275 shares) +(7.7 +) +(7.7 +) +Capital contribution from noncontrolling interests +2.5 +2.5 +Balance at January 2, 2016 +$ +103.9 +$ +75.9 +$ +950.8 +$ +(56.1 +) +$ +(110.8 +) +$ +6.0 +$ +969.7 +Net earnings (loss) +87.7 +(0.2 +) +87.5 +Other comprehensive loss +(25.0 +) +(0.4 +) +(25.4 +) +Shares issued under stock incentive plans, net of forfeitures (1,200,527 shares) +1.2 +(1.3 +) +(0.1 +) +Shares issued for stock options exercised, net (530,585 shares) +0.5 +6.9 +7.4 +Stock-based compensation expense +22.8 +22.8 +Income tax deficiencies from stock incentive plans +(1.0 +) +(1.0 +) +Cash dividends declared ($0.24 per share) +(23.4 +) +(23.4 +) +Issuance of treasury shares (57,798 shares) +(0.1 +) +1.2 +1.1 +Purchase of common stock for treasury (2,838,919 shares) +(61.9 +) +(61.9 +) +Purchases of shares under employee stock plans (283,578 shares) +(4.8 +) +(4.8 +) +Capital contribution from noncontrolling interests +2.2 +2.2 +Balance at December 31, 2016 +$ +105.6 +$ +103.2 +$ +1,015.1 +$ +(81.1 +) +$ +(176.3 +) +$ +7.6 +$ +974.1 +See accompanying notes to consolidated financial statements. +44 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at December 31, 2016 +$ +105.6 +$ +103.2 +$ +1,015.1 +$ +(81.1 +) +$ +(176.3 +) +$ +7.6 +$ +974.1 +Net earnings (loss) +0.3 +(1.0 +) +(0.7 +) +Other comprehensive income +5.9 +0.3 +6.2 +Shares forfeited, net of shares issued under stock incentive plans (488,655 shares) +(0.5 +) +0.3 +(0.2 +) +Shares issued for stock options exercised, net (1,247,064 shares) +1.3 +20.1 +21.4 +Stock-based compensation expense +25.4 +25.4 +Cash dividends declared ($0.24 per share) +(23.2 +) +(23.2 +) +Issuance of treasury shares (44,480 shares) +0.2 +0.9 +1.1 +Purchase of common stock for treasury (1,639,732 shares) +(42.3 +) +(42.3 +) +Purchases of shares under employee stock plans (227,464 shares) +(5.3 +) +(5.3 +) +Capital contribution from noncontrolling interests +0.8 +0.8 +Incremental investment in joint venture +(2.1 +) +(2.1 +) +Balance at December 30, 2017 +$ +106.4 +$ +149.2 +$ +992.2 +$ +(75.2 +) +$ +(223.0 +) +$ +5.6 +$ +955.2 +See accompanying notes to consolidated financial statements. +45 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years Ended December 30, 2017 , December 31, 2016 and January 2, 2016 +1. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; children’s footwear, industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® and Wolverine ® . Licensing and distribution arrangements with third parties extend the global reach of the Company’s brand portfolio. The Company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers, as well as a leathers division that markets Wolverine Performance Leathers™ . +Principles of Consolidation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2017, 2016 and 2015 all had 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +Revenue is recognized on the sale of products manufactured or sourced by the Company when the related goods have been shipped, legal title has passed to the customer and collectability is reasonably assured. Revenue generated through licensees and distributors involving products bearing the Company’s trademarks is recognized as earned according to stated contractual terms upon either the purchase or shipment of branded products by licensees and distributors. Retail store revenue is recognized at time of sale. +The Company records provisions for estimated sales returns and allowances at the time of sale based on historical rates of returns and allowances and specific identification of outstanding returns not yet received from customers. However, estimates of actual returns and allowances in any future period are inherently uncertain and actual returns and allowances may differ from these estimates. If actual or expected future returns and allowances were significantly greater or less than established reserves, a reduction or increase to net revenues would be recorded in the period this determination was made. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Shipping and Handling Costs +Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 107.1 million , $ 121.5 million and $ 137.2 million for fiscal years 2017 , 2016 and 2015 , respectively. Prepaid advertising totaled $ 2.8 million and $ 4.0 million as of December 30, 2017 and December 31, 2016 , respectively. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates market. +46 +Table of Contents +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +Inventories +The Company values its inventory at the lower of cost or market. Cost is determined by the LIFO method for certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for computer hardware and software, store furniture and fixtures, office furniture and machinery and equipment. Normal repairs and maintenance are expensed as incurred. +Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings and improvements, from 5 to 10 years for leasehold improvements and from 3 to 10 years for machinery, equipment and software. +Operating Leases +The Company leases its retail stores and certain distribution and office facilities under operating leases. In addition to the minimum lease payments, leases may include rent escalation clauses, contingent rental expense and lease incentives, including rent holidays and tenant improvement allowances. Rent expense is recognized on a straight-line basis over the term of the lease from the time at which the Company takes possession of the property. Landlord-provided tenant improvement allowances are recorded in other liabilities and amortized as a credit to rent expense over the term of the lease. Leasehold improvements are depreciated at the lesser of the estimated useful life or lease term, including reasonably-assured lease renewals as determined at lease inception. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. These costs are amortized into earnings through interest expense over the terms of the respective agreements. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units. Goodwill is considered impaired if the recorded value of the tangible and intangible net assets exceeds the fair value of the reporting unit. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. See Note 4 to the consolidated financial statements for information related to the results of the Company's annual test. +47 +Table of Contents +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. See Note 17 to the consolidated financial statements for information related to long-lived assets that were determined to be impaired. +Environmental +Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Liabilities related to estimated remediation costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 11 to the consolidated financial statements for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2017, 2016 and 2015. +2. +NEW ACCOUNTING STANDARDS +The Financial Accounting Standards Board (“FASB”) issued the following Accounting Standards Updates (“ASU”) that have been adopted by the Company during fiscal 2017. The following is a summary of the effect of adoption of these new standards. +Standard +Description +Effect on the Financial Statements or Other Significant Matters +ASU 2015-11, Simplifying the Measurement of Inventory +Requires that an entity measure inventory at the lower of cost and net realizable value. This ASU does not apply to inventory measured using last-in, first-out. +The adoption of the new standard in fiscal 2017 did not have, nor does the Company believe it will have, a material impact on the accounting for its inventory. +48 +Table of Contents +Standard +Description +Effect on the Financial Statements or Other Significant Matters +ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships +Clarifies that the novation of a derivative contract (i.e., a change in the counterparty) in a hedge accounting relationship does not, in and of itself, require dedesignation of that hedge accounting relationship, provided that all other hedge accounting criteria continue to be met. +The adoption of the new standard in fiscal 2017 did not have, nor does the Company believe it will have, a material impact on the accounting for its derivatives. +ASU 2016-09, Improvements to Employee Share-Based Payment Accounting +Seeks to provide simplification to issues of share-based payment awards in relation to income tax consequences, forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. +The adoption of the new standard in fiscal 2017 did not have a material impact on the Company’s results of operations and cash flows. +ASU 2017-01, Clarifying the Definition of a Business +Clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. +The adoption of the new standard in fiscal 2017 did not have a material impact on the Company’s results of operations and cash flows. +The FASB has issued the following ASUs that have not yet been adopted by the Company. The following is a summary of the planned adoption period and anticipated impact of adopting these new standards. +Standard +Description +Planned Period of Adoption +Effect on the Financial Statements or Other Significant Matters +ASU 2014-09, Revenue from Contracts with Customers (as amended by ASUs 2015-14, 2016-08, 2016-10, 2016-11, 2016-12, 2017-13, and 2017-14) +The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. +Q1 2018 +The Company has finalized its assessment of the update, which outlines a single, comprehensive model for accounting for revenue from contracts with customers. The Company's review indicated no cumulative-effect adjustment was required, indicating no impact on the Company's consolidated financial statements, except for enhanced disclosures upon adoption beginning in the first quarter of fiscal 2018. +ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities +Enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. +Q1 2018 +The adoption of the new standard will not have a material impact on the Company's consolidated financial statements. +ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost +Sponsors of benefit plans would be required to present service cost in the same line item or items as other current employee compensation costs, and present the remaining components of net benefit cost in one or more separate line items outside of income from operations, while also limiting the components of net benefit cost eligible to be capitalized to service cost. +Q1 2018 +The adoption of the new standard will require the Company to present the non-service pension costs as a component of expense below operating profit. The adoption, which will be applied retrospectively, will not have any impact on consolidated net income, financial position or cash flows. +49 +Table of Contents +Standard +Description +Planned Period of Adoption +Effect on the Financial Statements or Other Significant Matters +ASU 2016-02, Leases +The core principle is that a lessee shall recognize a lease asset and lease liability in its statement of financial position. A lessee should recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. +Q1 2019 +The Company is evaluating the impacts of the new standard on its existing leases. +ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities +Seeks to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities and to reduce the complexity of and simplify the application of hedge accounting. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness. +Q1 2019 +The Company is evaluating the impacts of the new standard on its existing derivative contracts. +ASU 2016-13, Measurement of Credit Losses on Financial Instruments +Seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. +Q1 2020 +The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables. +3. +EARNINGS PER SHARE +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +50 +Table of Contents +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) +2017 +2016 +2015 +Numerator: +Net earnings attributable to Wolverine World Wide, Inc. +$ +0.3 +$ +87.7 +$ +122.8 +Adjustment for earnings allocated to nonvested restricted common stock +— +(2.1 +) +(2.8 +) +Net earnings used to calculate basic earnings per share +0.3 +85.6 +120.0 +Adjustment for earnings (loss) reallocated to nonvested restricted common stock +(0.2 +) +0.1 +0.1 +Net earnings used to calculate diluted earnings per share +$ +0.1 +$ +85.7 +$ +120.1 +Denominator: +Weighted average shares outstanding +96.4 +99.0 +102.0 +Adjustment for nonvested restricted common stock +(2.7 +) +(3.7 +) +(3.4 +) +Shares used to calculate basic earnings per share +93.7 +95.3 +98.6 +Effect of dilutive stock options +1.7 +0.9 +1.4 +Shares used to calculate diluted earnings per share +95.4 +96.2 +100.0 +Net earnings per share: +Basic +$ +— +$ +0.90 +$ +1.22 +Diluted +$ +— +$ +0.89 +$ +1.20 +Options granted to purchase 1,753,869 , 3,100,328 and 2,264,711 shares in fiscal years 2017 , 2016 and 2015 , respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 30, 2017 or December 31, 2016 . The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +On August 8, 2016, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of up to $ 300.0 million in common stock over a four-year period, although the annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement. The Company repurchased $ 42.3 million , $ 61.9 million and $ 92.6 million of Company common stock in fiscal years 2017 , 2016 and 2015 , respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 5.5 million , $ 4.9 million and $ 7.7 million of shares in fiscal years 2017 , 2016 and 2015 , respectively, in connection with employee transactions related to stock incentive plans. +4. +GOODWILL AND OTHER INTANGIBLE ASSETS +The changes during fiscal years 2017 and 2016 in the carrying amount of goodwill and indefinite-lived intangibles, which comprises trademarks and trade names, is as follows: +(In millions) +Goodwill +Indefinite-lived intangibles +Total +Balance at January 2, 2016 +$ +429.1 +$ +685.4 +$ +1,114.5 +Purchase of intangibles +— +0.2 +0.2 +Impairment +— +(7.1 +) +(7.1 +) +Sale of a business +(2.3 +) +— +(2.3 +) +Foreign currency translation effects +(2.5 +) +— +(2.5 +) +Balance at December 31, 2016 +$ +424.3 +$ +678.5 +$ +1,102.8 +Impairment +— +(68.6 +) +(68.6 +) +Sale of a business +— +(5.4 +) +(5.4 +) +Foreign currency translation effects +5.5 +— +5.5 +Balance at December 30, 2017 +$ +429.8 +$ +604.5 +$ +1,034.3 +51 +Table of Contents +In the fourth quarter of fiscal 2017, as a result of its annual impairment testing, the Company recognized a $ 68.6 million impairment charge for the Sperry ® trade name. In the fourth quarter of fiscal 2016, as a result of its annual impairment testing, the Company recorded a $ 7.1 million impairment charge for the Stride Rite ® trade name. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand, which is estimated to improve the future profitability of the business and reduce the risk of future non-cash impairments. If the operating results for Sperry ® were to decline in future periods, the Company may need to record an additional non-cash impairment charge. The carrying value of the Company’s Stride Rite ® and Sperry ® trade name indefinite-lived intangible assets was $ 7.9 million and $ 518.2 million , respectively, as of December 30, 2017 . +In the second quarter of fiscal 2015, the Company recorded a $ 2.6 million impairment charge for the Cushe ® trade name, due to the decision to wind-down operations of the Cushe ® brand. +In the third quarter of fiscal 2017, the Company sold the intangible assets related to its Sebago ® brand from the Outdoor & Lifestyle Group operating segment. See Note 18 for additional information. During fiscal 2016, the Company sold a non-core business within the Multi-Brand Group operating segment, which included an allocation of goodwill for the brand. +The Company did not recognize any impairment charges during fiscal years 2017, 2016 or 2015 for goodwill, as the annual impairment testing indicated that all reporting unit goodwill fair values exceeded their respective carrying values. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. They consist primarily of customer relationships, licensing arrangements and developed product technology. The combined gross carrying value and accumulated amortization for these amortizable intangibles is as follows: +December 30, 2017 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +15 +$ +100.5 +$ +26.6 +$ +73.9 +Other +3 +13.5 +10.4 +3.1 +Total +$ +114.0 +$ +37.0 +$ +77.0 +December 31, 2016 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +16 +$ +100.5 +$ +21.6 +$ +78.9 +Licensing arrangements +1 +28.8 +27.6 +1.2 +Developed product technology +1 +14.9 +12.7 +2.2 +Other +3 +11.4 +9.9 +1.5 +Total +$ +155.6 +$ +71.8 +$ +83.8 +Amortization expense for these amortizable intangible assets was $ 9.4 million , $ 14.0 million and $ 15.6 million for fiscal years 2017 , 2016 and 2015 , respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 30, 2017 is as follows: +(In millions) +2018 +2019 +2020 +2021 +2022 +Amortization expense +$ +6.1 +$ +5.9 +$ +5.6 +$ +5.4 +$ +5.1 +52 +Table of Contents +5. +ACCOUNTS RECEIVABLE +The Company has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis that expires in the fourth quarter of fiscal 2018. Under the agreement, up to $ 150.0 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheet, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability for all periods presented. For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. The following is a summary of the stated amount of accounts receivable that was sold as well as fees charged by the financial institution. +Fiscal Year +(In millions) +2017 +2016 +2015 +Accounts receivable sold +$ +558.3 +$ +614.9 +$ +657.4 +Fees charged +2.1 +1.7 +1.4 +The fees are recorded in other expense. Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows. This program reduced the Company's accounts receivable by $ 70.1 million and $ 81.1 million as of December 30, 2017 and December 31, 2016 , respectively. +6. +INVENTORIES +The Company used the LIFO method to value inventories of $ 53.2 million at December 30, 2017 and $ 66.2 million at December 31, 2016 . During fiscal 2017, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior years. This LIFO liquidation decreased cost of goods sold by $ 6.0 million . If the FIFO method had been used, inventories would have been $ 16.4 million and $ 22.4 million higher than reported at December 30, 2017 and December 31, 2016 , respectively. +7. +DEBT +Total debt consists of the following obligations: +(In millions) +December 30, +2017 +December 31, +2016 +Term Loan A, due July 13, 2020 +$ +538.1 +$ +575.6 +Senior Notes, 5.000% interest, due September 1, 2026 +250.0 +250.0 +Borrowings under revolving credit agreements and other short-term notes +0.5 +2.9 +Capital lease obligation +0.5 +0.5 +Unamortized debt issuance costs +(6.5 +) +(8.3 +) +Total debt +$ +782.6 +$ +820.7 +On September 15, 2016, the Company amended its credit agreement (as amended, the "Credit Agreement"). The Credit Agreement provided a $ 588.8 million term loan facility (“Term Loan A”) and a $ 600.0 million revolving credit facility (the “Revolving Credit Facility”), both with maturity dates of July 13, 2020. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met. Term Loan A requires quarterly principal payments with a balloon payment due on July 13, 2020. The scheduled principal payments due over the next 12 months total $ 37.5 million as of December 30, 2017 and are recorded as current maturities of long-term debt on the consolidated balance sheet. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $600.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Credit Facility of $ 2.5 million and $ 2.6 million as of December 30, 2017 and December 31, 2016 , respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +53 +Table of Contents +The interest rates applicable to amounts outstanding under Term Loan A and to U.S. dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.25% to 1.00% , or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.25% to 2.00% (all capitalized terms used in this sentence are as defined in the Credit Agreement). The Company has an interest rate swap arrangement that reduces the Company’s exposure to fluctuations in interest rates on its variable rate debt. At December 30, 2017 , Term Loan A had a weighted-average interest rate of 3.39 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Credit Agreement also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Credit Agreement requires compliance with the following financial covenants: a maximum Consolidated Leverage Ratio; a maximum Consolidated Secured Leverage Ratio; and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Credit Agreement). As of December 30, 2017 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.00% with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company has a foreign revolving credit facility with aggregate available borrowings of $ 4.0 million that are uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender. Borrowings against this facility were $ 0.5 million and $ 1.8 million as of December 30, 2017 and December 31, 2016 , respectively. +The Company has a capital lease obligation with payments scheduled to continue through February 2022. +The Company included in interest expense the amortization of deferred financing costs of $ 2.8 million , $ 3.1 million and $ 3.7 million in fiscal years 2017 , 2016 and 2015 , respectively. +Annual maturities of debt, including capital leases, for the fiscal years subsequent to December 30, 2017 are as follows: +(In millions) +2018 +2019 +2020 +2021 +2022 +Thereafter +Annual maturities of debt +$ +38.0 +$ +60.2 +$ +440.7 +$ +0.2 +$ +— +$ +250.0 +8. +PROPERTY, PLANT AND EQUIPMENT AND OPERATING LEASES +Property, plant and equipment consisted of the following: +(In millions) +December 30, +2017 +December 31, +2016 +Land +$ +4.0 +$ +4.1 +Buildings and improvements +103.5 +125.1 +Machinery and equipment +171.0 +189.6 +Software +112.6 +115.2 +Gross cost +391.1 +434.0 +Less: accumulated depreciation +254.4 +287.9 +Property, plant and equipment, net +$ +136.7 +$ +146.1 +Depreciation expense was $ 27.8 million , $ 29.5 million and $ 33.1 million for fiscal years 2017 , 2016 and 2015 , respectively. +The Company leases machinery, equipment and certain warehouse, office and retail store space under operating lease agreements that expire at various dates through 2035. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes and other operating expenses. +54 +Table of Contents +Rental expense under all operating leases, consisting primarily of minimum rentals, totaled $ 39.9 million , $ 55.5 million and $ 54.8 million in fiscal years 2017 , 2016 and 2015 , respectively. The Company recognized sublease income of $ 1.9 million and $ 0.9 million in fiscal years 2017 and 2016 , respectively. As of December 30, 2017 , the Company is due $ 19.1 million in future rentals under noncancelable subleases. +Minimum rental payments due and minimum sublease rentals to be received under all noncancelable operating leases for the fiscal years subsequent to December 30, 2017 are as follows: +(In millions) +2018 +2019 +2020 +2021 +2022 +Thereafter +Minimum rental payments +$ +31.2 +$ +30.2 +$ +26.8 +$ +25.1 +$ +23.3 +$ +120.8 +9. +DERIVATIVE FINANCIAL INSTRUMENTS +The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which is intended to improve transparency in financial reporting and requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. +The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extend out to a maximum of 356 days, as of December 30, 2017 and December 31, 2016 . The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency translation exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has an interest rate swap arrangement, which unless otherwise terminated, will mature on July 13, 2020 . This agreement, which exchanges floating rate for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts, has been designated as cash flow hedge of the debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. +The Company has a cross currency swap to minimize the impact of exchange rate fluctuations. The hedging instrument, which, unless otherwise terminated, will mature on September 1, 2021 , has been designated as a hedge of a net investment in a foreign operation. The Company will pay 2.75 % on the euro-denominated notional amount and receive 5.00 % on the U.S. dollar notional amount, with an exchange of principal at maturity. Changes in fair value related to movements in the foreign currency exchange spot rate are recorded in accumulated other comprehensive income (loss) ("AOCI"), offsetting the currency translation adjustment related to the underlying net investment that is also recorded in AOCI. All other changes in fair value are recorded in interest expense. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) +December 30, 2017 +December 31, 2016 +Foreign exchange contracts: +Hedge contracts +$ +162.7 +$ +169.2 +Non-hedge contracts +— +2.1 +Interest rate swap +446.9 +496.0 +Cross currency swap +106.4 +— +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) +December 30, 2017 +December 31, 2016 +Financial assets: +Foreign exchange contracts - hedge +$ +0.3 +$ +6.6 +Interest rate swap +— +0.1 +Financial liabilities: +Foreign exchange contracts - hedge +$ +(5.0 +) +$ +(0.3 +) +Interest rate swap +(0.3 +) +(5.3 +) +Cross currency swap +(13.8 +) +— +55 +Table of Contents +Hedge effectiveness on the foreign exchange contracts is evaluated by the hypothetical derivative method. Any hedge ineffectiveness is reported within the cost of goods sold line item in the consolidated statements of operations. Hedge ineffectiveness was not material to the Company’s consolidated financial statements for the fiscal years ending December 30, 2017 , December 31, 2016 and January 2, 2016 . If, in the future, the foreign exchange contracts are determined to be ineffective hedges or terminated before their contractual termination dates, the Company would be required to reclassify into earnings all or a portion of the unrealized amounts related to the cash flow hedges that are currently included in AOCI within stockholders’ equity. +The differential paid or received on the interest rate swap arrangement is recognized as interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swap and the variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the hedges’ inception, and continues to assess on an ongoing basis, whether the derivatives used in the hedging transaction are highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of AOCI and will be recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value will be immediately recognized as a component of interest expense. The Company's interest rate swaps have remained effective since inception throughout fiscal years ending December 30, 2017 , December 31, 2016 and January 2, 2016 +Hedge effectiveness on the cross currency swap is assessed using the spot method. In accordance with ASC 815, the Company has formally documented the relationship between the cross currency swap and the Company’s investment in its euro-denominated subsidiary, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to its net investment on the balance sheet. The Company also assessed at the hedges’ inception, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in expected cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of AOCI and will be recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value will be immediately recognized as a component of interest expense. The Company's cross currency swap has remained effective since inception throughout fiscal year ending December 30, 2017 . +10. +STOCK-BASED COMPENSATION +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company recognized compensation expense of $ 25.4 million , $ 22.8 million and $ 18.7 million and related income tax benefits of $ 8.6 million , $ 7.9 million and $ 6.1 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2017 , 2016 and 2015 , respectively. The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. +As of December 30, 2017 , the Company had 2,673,893 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016 ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment or upon failure to achieve performance criteria in certain instances. These restrictions typically lapse over a three- to four-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement and upon a change in control of the Company. With regard to acceleration of vesting upon retirement, employees of eligible retirement age are vested in accordance with plan provisions and applicable stock option and restricted stock agreements. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued, shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +56 +Table of Contents +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $5.50 , $3.36 and $6.35 per share for fiscal years 2017 , 2016 and 2015 , respectively, with the following weighted-average assumptions. +Fiscal Year +2017 +2016 +2015 +Expected market price volatility (1) +29.3 +% +27.2 +% +28.8 +% +Risk-free interest rate (2) +1.7 +% +1.0 +% +1.3 +% +Dividend yield (3) +1.0 +% +1.4 +% +0.9 +% +Expected term (4) +4 years +4 years +4 years +(1) +Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant. +(2) +Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. +(3) +Represents the Company’s estimated cash dividend yield for the expected term. +(4) +Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior. +A summary of the stock option transactions is as follows: +Shares Under Option +Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at January 3, 2015 +6,397,993 +$ +18.36 +6.2 +$ +68.3 +Granted +1,366,137 +28.22 +Exercised +(1,003,896 +) +14.63 +Cancelled +(387,840 +) +26.93 +Outstanding at January 2, 2016 +6,372,394 +$ +20.54 +6.1 +$ +8.6 +Granted +2,445,573 +16.88 +Exercised +(562,610 +) +14.41 +Cancelled +(761,695 +) +23.03 +Outstanding at December 31, 2016 +7,493,662 +$ +19.55 +6.4 +$ +28.7 +Granted +93,274 +23.85 +Exercised +(1,267,269 +) +17.15 +Cancelled +(230,003 +) +21.37 +Outstanding at December 30, 2017 +6,089,664 +$ +20.05 +5.8 +$ +72.1 +Nonvested at December 30, 2017 +(1,439,221 +) +Exercisable at December 30, 2017 +4,650,443 +$ +20.47 +5.1 +$ +53.1 +The total pretax intrinsic value of stock options exercised during fiscal years 2017 , 2016 and 2015 was $12.5 million , $4.0 million and $14.5 million , respectively. As of December 30, 2017 , there was $ 1.8 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 1.0 years. As of December 31, 2016 and January 2, 2016 , there was $4.8 million and $4.6 million , respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.4 years and 1.2 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price of the Company's stock was above the strike price ("in-the-money"), as of that date. The total number of in-the-money options exercisable as of December 30, 2017 , based on the Company’s closing stock price of $ 31.88 per share, was 4,563,527 and the weighted-average exercise price was $20.26 per share. As of December 31, 2016 , 3,546,676 outstanding options were exercisable and in-the-money and the weighted-average exercise price was $16.81 per share. +57 +Table of Contents +Restricted Awards and Performance Awards +A summary of the nonvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards +Weighted- +Average +Grant Date +Fair Value +Performance +Awards +Weighted- +Average +Grant Date +Fair Value +Nonvested at January 3, 2015 +1,727,182 +$ +22.44 +1,490,770 +$ +23.30 +Granted +677,113 +27.26 +732,124 +28.62 +Vested +(398,582 +) +18.99 +(311,343 +) +20.47 +Forfeited +(279,074 +) +25.90 +(405,432 +) +24.76 +Nonvested at January 2, 2016 +1,726,639 +$ +24.57 +1,506,119 +$ +26.08 +Granted +1,050,758 +16.89 +1,008,228 +16.71 +Vested +(443,380 +) +22.10 +(316,454 +) +23.54 +Forfeited +(386,639 +) +23.27 +(467,007 +) +23.22 +Nonvested at December 31, 2016 +1,947,378 +$ +21.24 +1,730,886 +$ +21.86 +Granted +762,078 +23.06 +511,722 +25.14 +Vested +(445,939 +) +22.03 +(173,894 +) +27.01 +Forfeited +(238,445 +) +21.66 +(378,046 +) +25.04 +Nonvested at December 30, 2017 +2,025,072 +$ +21.70 +1,690,668 +$ +21.54 +As of December 30, 2017 , there was $ 18.3 million of unrecognized compensation expense related to nonvested Restricted Awards which is expected to be recognized over a weighted-average period of 1.8 years. The total fair value of Restricted Awards vested during the year ended December 30, 2017 was $ 10.6 million . As of December 31, 2016 , there was $16.6 million of unrecognized compensation expense related to nonvested Restricted Awards which was expected to be recognized over a weighted-average period of 2.1 years. The total fair value of Restricted Awards vested during the year ended December 31, 2016 was $7.7 million . As of January 2, 2016 , there was $17.2 million of unrecognized compensation expense related to nonvested Restricted Awards which was expected to be recognized over a weighted-average period of 1.9 years. The total fair value of Restricted Awards vested during the year ended January 2, 2016 was $11.1 million . +As of December 30, 2017 , there was $ 16.9 million of unrecognized compensation expense related to nonvested Performance Awards which is expected to be recognized over a weighted-average period of 1.9 years. The total fair value of Performance Awards vested during the year ended December 30, 2017 was $ 4.0 million . As of December 31, 2016 , there was $8.2 million of unrecognized compensation expense related to nonvested Performance Awards which was expected to be recognized over a weighted-average period of 1.8 years. The total fair value of Performance Awards vested during the year ended December 31, 2016 was $5.2 million . As of January 2, 2016 , there was $4.5 million of unrecognized compensation expense related to nonvested Performance Awards which was expected to be recognized over a weighted-average period of 2.0 years. The total fair value of Performance Awards vested during the year ended January 2, 2016 was $ 8.7 million . +11. +RETIREMENT PLANS +The Company has three non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The Company’s second plan provides benefits at a fixed rate per year of service for certain employees under a collective bargaining arrangement. The Company’s third non-contributory defined benefit pension plan is closed to new participants and no longer accrues future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company for a period of time that generally extends 15 to 18 years following retirement. The Company maintains life insurance policies with a cash surrender value of $ 60.7 million at December 30, 2017 and $ 56.6 million at December 31, 2016 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +58 +Table of Contents +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for Company contributions based on earnings. The Company recognized expense for its contributions to the defined contribution plans of $ 4.2 million , $ 4.0 million and $ 4.6 million in fiscal years 2017 , 2016 and 2015 , respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.0 million , $ 1.1 million and $ 1.5 million in fiscal years 2017 , 2016 and 2015 , respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 1.1 million at December 30, 2017 and $ 1.1 million at December 31, 2016 and was recognized as a deferred compensation liability on the consolidated balance sheets. +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2017 and 2016 : +Fiscal Year +(In millions) +2017 +2016 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ +417.5 +$ +392.8 +Service cost pertaining to benefits earned during the year +7.2 +6.5 +Interest cost on projected benefit obligations +17.7 +19.1 +Actuarial losses +30.5 +31.0 +Benefits paid to plan participants +(27.2 +) +(24.7 +) +Curtailment +(2.3 +) +— +Settlement +— +(7.2 +) +Projected benefit obligations at end of the year +$ +443.4 +$ +417.5 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ +271.9 +$ +280.8 +Actual return on plan assets +41.0 +19.1 +Company contributions - pension +11.3 +1.5 +Company contributions - SERP +2.6 +2.4 +Benefits paid to plan participants +(27.2 +) +(24.7 +) +Settlement +— +(7.2 +) +Fair value of pension assets at end of the year +$ +299.6 +$ +271.9 +Funded status +$ +(143.8 +) +$ +(145.6 +) +Amounts recognized in the consolidated balance sheets: +Non-current assets +$ +2.1 +$ +1.2 +Current liabilities +(3.7 +) +(3.7 +) +Non-current liabilities +(142.2 +) +(143.1 +) +Net amount recognized +$ +(143.8 +) +$ +(145.6 +) +Funded status of pension plans and SERP (supplemental): +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations +54.0 +50.1 +Net funded status of pension plans and SERP (supplemental) +$ +(89.8 +) +$ +(95.5 +) +Unrecognized net actuarial loss recognized in AOCI was $ 42.6 million and $ 45.3 million , and amounts net of tax were $ 28.6 million and $ 30.4 million , as of December 30, 2017 and December 31, 2016, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 422.0 million at December 30, 2017 and $ 396.3 million at December 31, 2016 . +59 +Table of Contents +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) +2017 +2016 +2015 +Service cost pertaining to benefits earned during the year +$ +7.2 +$ +6.5 +$ +9.0 +Interest cost on projected benefit obligations +17.7 +19.1 +18.5 +Expected return on pension assets +(19.8 +) +(20.1 +) +(20.5 +) +Net amortization loss +9.8 +5.0 +20.9 +Settlement gain +— +(0.1 +) +— +Net pension expense +$ +14.9 +$ +10.4 +$ +27.9 +Less: SERP expense +5.5 +5.8 +7.8 +Qualified defined benefit pension plans expense +$ +9.4 +$ +4.6 +$ +20.1 +The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during 2018 is $ 3.3 million . +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2017 +2016 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +3.80% +4.35% +Rate of compensation increase - pension +3.92% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +4.35% +5.00% +Expected long-term rate of return on plan assets +7.25% +7.25% +Rate of compensation increase - pension +3.97% +4.85% +Rate of compensation increase - SERP +7.00% +7.00% +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five -year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and service cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 30, 2017 were 58 % in equity securities, 37 % in fixed income securities and 5 % in real estate investments. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +December 30, 2017 +(In millions) +Level 1 +Level 2 +Level 3 +Other 1 +Total +Equity securities +$ +— +$ +— +$ +— +$ +173.4 +$ +173.4 +57.9 +% +Fixed income securities +— +— +— +109.1 +109.1 +36.4 +% +Real estate investments +— +— +— +15.8 +15.8 +5.3 +% +Other +— +— +1.3 +— +1.3 +0.4 +% +Fair value of plan assets +$ +— +$ +— +$ +1.3 +$ +298.3 +$ +299.6 +100.0 +% +60 +Table of Contents +December 31, 2016 +(In millions) +Level 1 +Level 2 +Level 3 +Other 1 +Total +Equity securities +$ +— +$ +— +$ +— +$ +161.0 +$ +161.0 +59.2 +% +Fixed income securities +— +— +0.3 +95.4 +95.7 +35.2 +% +Real estate investments +— +— +— +14.5 +14.5 +5.3 +% +Other +— +— +0.7 +— +0.7 +0.3 +% +Fair value of plan assets +$ +— +$ +— +$ +1.0 +$ +270.9 +$ +271.9 +100.0 +% +1 +In accordance with ASC 820, Fair Value Measurement , certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +The Company expects to contribute approximately $ 1.7 million to its qualified defined benefit pension plans and $ 3.7 million to the SERP in fiscal 2018 . +Expected benefit payments for the fiscal years subsequent to December 30, 2017 are as follows: +(In millions) +2018 +2019 +2020 +2021 +2022 +2023-2027 +Expected benefit payments +$ +20.6 +$ +21.0 +$ +21.4 +$ +21.9 +$ +22.2 +$ +118.6 +12. +INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) +2017 +2016 +2015 +United States +$ +(78.2 +) +$ +54.7 +$ +102.1 +Foreign +67.6 +55.8 +62.5 +Earnings (loss) before income taxes +$ +(10.6 +) +$ +110.5 +$ +164.6 +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) +2017 +2016 +2015 +Current expense: +Federal +$ +48.1 +$ +16.0 +$ +48.9 +State +1.9 +1.4 +5.2 +Foreign +14.0 +11.3 +11.6 +Deferred expense (credit): +Federal +(72.0 +) +(6.9 +) +(22.0 +) +State +(0.2 +) +(0.3 +) +(1.9 +) +Foreign +(1.7 +) +1.5 +(0.4 +) +Income tax provision +$ +(9.9 +) +$ +23.0 +$ +41.4 +61 +Table of Contents +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate of 35 % to earnings before income taxes is as follows: +Fiscal Year +(In millions) +2017 +2016 +2015 +Income taxes at U.S. statutory rate (35%) +$ +(3.7 +) +$ +38.7 +$ +57.6 +State income taxes, net of federal income tax +(4.2 +) +(6.1 +) +1.8 +(Nontaxable earnings) non-deductible losses of foreign affiliates: +Cayman Islands +(3.5 +) +(0.4 +) +(0.4 +) +Other +(0.3 +) +0.2 +(1.9 +) +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong +(17.3 +) +(17.3 +) +(18.1 +) +Other +3.5 +3.3 +0.2 +Adjustments for uncertain tax positions +0.4 +0.2 +0.1 +Change in valuation allowance +3.0 +2.0 +(1.3 +) +Change in state tax rates +0.1 +(0.1 +) +(0.7 +) +Transition tax due to TCJA +58.1 +— +— +Remeasurement of U.S. deferred taxes due to TCJA +(52.5 +) +— +— +Deferred tax on future cash dividends +3.0 +— +— +Non-deductible expenses +(0.6 +) +1.9 +3.5 +Other +4.1 +0.6 +0.6 +Income tax provision +$ +(9.9 +) +$ +23.0 +$ +41.4 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) +December 30, +2017 +December 31, +2016 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances +$ +5.9 +$ +17.2 +Deferred compensation accruals +8.9 +9.0 +Accrued pension expense +33.9 +53.7 +Stock-based compensation +16.7 +22.6 +Net operating loss and foreign tax credit carryforwards +15.1 +9.7 +Book over tax depreciation and amortization +— +2.0 +Tenant lease expenses +3.2 +5.0 +Environmental reserve +7.9 +— +Other +10.4 +9.3 +Total gross deferred income tax assets +102.0 +128.5 +Less valuation allowance +(14.5 +) +(11.5 +) +Net deferred income tax assets +87.5 +117.0 +Deferred income tax liabilities: +Intangible assets +(155.3 +) +(270.5 +) +Tax over book depreciation and amortization +(6.3 +) +— +Other +(5.8 +) +(5.2 +) +Total deferred income tax liabilities +(167.4 +) +(275.7 +) +Net deferred income tax liabilities +$ +(79.9 +) +$ +(158.7 +) +The valuation allowance for deferred income tax assets as of December 30, 2017 and December 31, 2016 was $ 14.5 million and $ 11.5 million , respectively. The net increase in the total valuation allowance for fiscal years 2017 and 2016 was $ 3.0 million and $ 2.0 million , respectively. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends +62 +Table of Contents +on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation allowance was comprised of an increase against the state deferred tax assets of $ 1.1 million and an increase related to state net operating loss carryforward of $ 2.9 million , a decrease related to an audit adjustment of a foreign net operating loss of $ 1.3 million and a net increase relating to the foreign net operating losses and foreign tax credits of $ 0.3 million . +At December 30, 2017 , the Company had foreign net operating loss carryforwards of $ 33.9 million , which have expirations ranging from 2019 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. state net operating loss carryforwards of $ 99.8 million , which have expirations ranging from 2018 to 2037 during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.6 million , which are available for an unlimited carryforward period to offset future foreign taxes. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) +2017 +2016 +Beginning balance +$ +8.9 +$ +8.7 +Increases related to current year tax positions +1.8 +1.4 +Decreases related to prior year positions +(1.1 +) +(1.0 +) +Decrease due to lapse of statute +(0.3 +) +(0.2 +) +Ending balance +$ +9.3 +$ +8.9 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 8.5 million as of December 30, 2017 and $7.8 million as of December 31, 2016 . The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 2.7 million as of December 30, 2017 and $ 2.9 million as of December 31, 2016 . +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2013 . +On December 22, 2017, the TCJA was enacted which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. As a result, the Company recorded income tax expense of $ 5.6 million during the fourth quarter of 2017. This amount, which is included in the income tax expense (benefit) line item in the consolidated statements of operations, consists of two components: (i) a $ 58.1 million expense relating to the estimated one-time mandatory transition tax on previously deferred earnings of certain non-U.S. subsidiaries that are owned either wholly or partially by a U.S. subsidiary of the Company to be paid over eight years, and (ii) a $ 52.5 million benefit resulting from the remeasurement of the Company’s deferred tax assets and liabilities in the U.S. based on the new lower corporate income tax rate. +As a result of the TCJA, the Company now intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 3.0 million . +The amounts recorded due to the enactment of the TCJA are the Company's best estimate based on the current information and guidance available at this time, and represent provisional estimates of the transition tax, remeasurement of deferred tax accounts and deferred tax liability on future dividends associated with the TCJA, and as allowed under SAB 118, will be finalized in 2018. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of foreign unremitted earnings of $ 259.0 million at December 30, 2017. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +13. +ACCUMLATED OTHER COMPREHENSIVE INCOME (LOSS) +Comprehensive income (loss) represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +63 +Table of Contents +The change in accumulated other comprehensive income (loss) during fiscal years 2017 and 2016 is as follows: +(In millions) +Foreign +currency +translation +adjustments +Derivatives +Pension +adjustments +Total +Balance of AOCI as of January 2, 2016 +$ +(47.3 +) +$ +4.0 +$ +(12.8 +) +$ +(56.1 +) +Other comprehensive income (loss) before reclassifications (1) +(6.2 +) +3.5 +(20.8 +) +(23.5 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +(6.4 +) +(2) +4.9 +(3) +(1.5 +) +Income tax (expense) benefit +— +1.7 +(1.7 +) +— +Net reclassifications +— +(4.7 +) +3.2 +(1.5 +) +Net current-period other comprehensive income (loss) (1) +(6.2 +) +(1.2 +) +(17.6 +) +(25.0 +) +Balance of AOCI as of December 31, 2016 +$ +(53.5 +) +$ +2.8 +$ +(30.4 +) +$ +(81.1 +) +Other comprehensive income (loss) before reclassifications (1) +20.8 +(16.0 +) +(4.5 +) +0.3 +Amounts reclassified from accumulated other comprehensive income (loss) +— +(0.4 +) +(2) +9.8 +(3) +9.4 +Income tax (expense) benefit +— +(0.3 +) +(3.5 +) +(3.8 +) +Net reclassifications +— +(0.7 +) +6.3 +5.6 +Net current-period other comprehensive income (loss) (1) +20.8 +(16.7 +) +1.8 +5.9 +Balance of AOCI as of December 30, 2017 +$ +(32.7 +) +$ +(13.9 +) +$ +(28.6 +) +$ +(75.2 +) +(1) +Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) +Amounts related to foreign currency derivatives are included in cost of goods sold. Amounts related to interest rate swaps and the cross currency swap are included in interest expense. +(3) +Amounts reclassified are included in the computation of net pension expense. +14. +FAIR VALUE MEASUREMENTS +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: +Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: +Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: +Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) +December 30, 2017 +December 31, 2016 +Financial assets: +Derivatives +$ +0.3 +$ +6.7 +Financial liabilities: +Derivatives +$ +(19.1 +) +$ +(5.6 +) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. The interest rate swaps are valued based on the current forward rates of the future cash flows. The fair value of the cross currency swap is determined using the current forward rates and changes in the spot rate. +64 +Table of Contents +Nonrecurring Fair Value Measurements +The following is a summary of assets and impairments that were measured at fair value on a nonrecurring basis. +Fiscal 2017 +Fiscal 2016 +(In millions) +Fair Value +Impairment +Fair Value +Impairment +Property and equipment +$ +0.2 +$ +11.0 +$ +0.7 +$ +12.4 +Indefinite-lived intangibles +518.2 +68.6 +7.9 +7.1 +The property and equipment and indefinite-lived intangibles were valued using an income approach based on the discounted cash flows expected to be generated by the underlying assets (Level 3). +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt, excluding capital leases, are as follows: +(In millions) +December 30, 2017 +December 31, 2016 +Carrying value +$ +782.1 +$ +820.2 +Fair value +802.5 +827.6 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +15. +LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900’s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street Site"). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street Site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets, and Scotchgard™. +The United States Centers for Disease Control and Prevention has concluded that studies of the health effects of PFOA and PFOS are “inconsistent and inconclusive,” but in May 2016 the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion ("ppt") combined for PFOA and PFOS. Lifetime health advisories, while not enforceable, serve as guidance and are benchmarks for determining if concentrations of chemicals in tap water from public utilities are safe for public consumption. On January 9, 2018, the Michigan Department of Environmental Quality (“MDEQ”) announced it developed a drinking water criterion of 70 ppt combined for PFOA and PFOS, which sets an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. This combined criterion took effect January 10, 2018. +The Company has been served with two regulatory actions including a civil action filed by the MDEQ under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”), and a Unilateral Administrative Order issued by the EPA under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) Section 106. The Company has also been served with lawsuits from individuals and a putative class. +Regulatory Actions of EPA and MDEQ +On January 10, 2018, the MDEQ filed a civil action against the Company under the federal RCRA alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties, has contributed to the disposal of solid wastes that was done in a way that resulted in releases of PFAS at levels that resulted in detections exceeding applicable Michigan cleanup criteria for PFOA and PFOS. +65 +Table of Contents +The MDEQ Action seeks to require the Company to investigate the location and extent of PFAS in the environment, develop and implement plans for the continued sampling and analysis of impacts to drinking water wells from PFAS released or disposed of by the Company, and provide alternative drinking water supplies to homes impacted by PFAS for which the Company is allegedly responsible. The MDEQ Action further seeks to require the Company to connect users of drinking water wells to municipal drinking water supplies to address allegedly unacceptable risks posed by a release or threat of release of PFAS attributable to the Company. The Company is working with the MDEQ to analyze the House Street Site and test nearby residential drinking water wells and coordinate communications to impacted homeowners. The Company’s current remediation efforts have included amongst other items, providing alternate drinking water to impacted homes, including bottled water and water filtration systems. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “EPA Order” or “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a). The effective date of the Order was February 1, 2018. The Order pertains to the Company's Tannery site and House Street Site and directs the Company to conduct specified removal actions to abate actual or threatened release of hazardous substances at or from the sites. The Order requires the Company to submit to the EPA, within 60 days after the effective date, a draft removal work plan for performing the removal actions. The Company expects to submit its draft removal work plan in early April of 2018. The Order requires other submittals as well, including a Sampling and Analysis Plan, Health and Safety Plan, Quality Assurance Project Plan, monthly progress reports and other technical reports. On February 1, 2018, the Company filed its Notice of Intent to Comply with the EPA Order, which outlined the Company’s position on the aspects of the proposed Order. In its response, the Company has agreed to comply with the terms of the Order, but has identified inaccuracies and shortcomings in the Order that challenge the legal basis for the Order. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual Litigation Actions +Individual lawsuits as well as a putative class action lawsuit have been filed against the Company that raise a variety of claims, including related to property, remediation, and human health effects. Assessing potential liability with respect to the putative class action and individual lawsuits at this time, however, is difficult. The putative class action and individual lawsuits were only recently filed and there is minimal direct and relevant precedent for these types of claims related to PFAS. In addition, the science regarding the human health effects of PFAS exposure in the environment remains inconclusive and inconsistent, thereby creating additional uncertainties. Due to these factors, combined with the complexities and uncertainties of litigation, the Company is unable to conclude that adverse verdicts resulting from the class action and individual actions are probable, and therefore no amounts are currently reserved for these claims. The Company intends to continue to vigorously defend itself against these claims. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment and intellectual property. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +Environmental Liabilities +As of December 30, 2017, the Company has reserved $ 31.1 million for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual site. Of this reserve, $ 12.5 million of the reserve is expected to be paid in fiscal 2018 and is recorded in other accrued liabilities with the remaining $ 18.6 million recorded in other liabilities expected to be paid over the course of thirty years. The Company records liabilities for remediation costs on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or the Company’s commitment to a plan of action. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company expects that it will pay the amounts accrued over the periods of remediation for the applicable sites, currently ranging up to 30 years. +The Company's remediation activity at its former tannery site and other sites where the Company disposed of tannery byproducts is largely ongoing and in the early stages. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) success in allocating liability +66 +Table of Contents +to other potentially responsible parties; and (v) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to December 30, 2017 are as follows: +(In millions) +2018 +2019 +2020 +2021 +2022 +Thereafter +Minimum royalties +$ +1.4 +$ +1.5 +$ +1.5 +$ +— +$ +— +$ +— +Minimum advertising +2.9 +3.0 +3.1 +3.2 +3.3 +6.9 +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.3 million , $ 2.0 million and $ 2.0 million for fiscal years 2017 , 2016 and 2015 , respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales. In accordance with these agreements, the Company incurred advertising expense of $ 3.2 million , $ 3.2 million and $ 3.3 million for fiscal years 2017 , 2016 and 2015 , respectively. +16. +BUSINESS SEGMENTS +The Company’s portfolio of brands is organized into the following four operating segments, which the Company has determined to be reportable operating segments. During the second quarter of fiscal 2017, the components within the Wolverine Multi-Brand Group were realigned as the Company transitioned Stride Rite ® to a global license arrangement, which was effective on July 2, 2017. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear, Sebago ® footwear and apparel and Cushe ® footwear; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of the Company’s Children’s footwear business and the Company's multi-brand consumer-direct businesses. The Children’s footwear business includes Stride Rite ® , as well as children’s footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs and environmental and other related costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. +The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies set forth in Note 1 to the consolidated financial statements. +67 +Table of Contents +Company management uses various financial measures to evaluate the performance of the reportable operating segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. All prior period amounts have been restated to reflect the new reportable operating segments. +Fiscal Year +(In millions) +2017 +2016 +2015 +Revenue: +Wolverine Outdoor & Lifestyle Group +$ +947.1 +$ +890.6 +$ +957.5 +Wolverine Boston Group +833.8 +889.4 +942.8 +Wolverine Heritage Group +327.9 +347.0 +370.5 +Wolverine Multi-Brand Group +166.9 +304.3 +351.2 +Other +74.3 +63.3 +69.6 +Total +$ +2,350.0 +$ +2,494.6 +$ +2,691.6 +Operating profit (loss): +Wolverine Outdoor & Lifestyle Group +$ +193.2 +$ +166.8 +$ +197.7 +Wolverine Boston Group +139.1 +121.7 +132.9 +Wolverine Heritage Group +53.3 +50.8 +54.6 +Wolverine Multi-Brand Group +10.5 +4.8 +5.2 +Other +6.4 +5.5 +5.6 +Corporate +(378.6 +) +(189.7 +) +(194.9 +) +Total +$ +23.9 +$ +159.9 +$ +201.1 +Depreciation and amortization expense: +Wolverine Outdoor & Lifestyle Group +$ +2.4 +$ +3.0 +$ +3.4 +Wolverine Boston Group +3.2 +4.1 +4.2 +Wolverine Heritage Group +0.5 +0.5 +0.5 +Wolverine Multi-Brand Group +3.1 +4.5 +6.3 +Other +0.9 +1.5 +1.5 +Corporate +27.1 +29.9 +32.8 +Total +$ +37.2 +$ +43.5 +$ +48.7 +Capital expenditures: +Wolverine Outdoor & Lifestyle Group +$ +0.5 +$ +3.3 +$ +4.7 +Wolverine Boston Group +1.6 +4.7 +8.3 +Wolverine Heritage Group +— +0.5 +0.4 +Wolverine Multi-Brand Group +0.7 +2.5 +7.2 +Other +1.1 +1.5 +0.9 +Corporate +28.5 +42.8 +24.9 +Total +$ +32.4 +$ +55.3 +$ +46.4 +68 +Table of Contents +(In millions) +December 30, +2017 +December 31, +2016 +Total assets: +Wolverine Outdoor & Lifestyle Group +$ +420.4 +$ +391.8 +Wolverine Boston Group +1,176.9 +1,273.5 +Wolverine Heritage Group +136.7 +157.8 +Wolverine Multi-Brand Group +81.5 +140.8 +Other +28.7 +33.7 +Corporate +554.8 +434.1 +Total +$ +2,399.0 +$ +2,431.7 +Goodwill: +Wolverine Outdoor & Lifestyle Group +$ +128.8 +$ +126.6 +Wolverine Boston Group +260.8 +257.5 +Wolverine Heritage Group +16.5 +16.5 +Wolverine Multi-Brand Group +23.7 +23.7 +Total +$ +429.8 +$ +424.3 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) +2017 +2016 +2015 +United States +$ +1,608.7 +$ +1,791.5 +$ +1,948.9 +Foreign: +Europe, Middle East and Africa +322.4 +323.9 +345.3 +Canada +121.2 +120.5 +141.2 +Other +297.7 +258.7 +256.2 +Total from foreign territories +741.3 +703.1 +742.7 +Total revenue +$ +2,350.0 +$ +2,494.6 +$ +2,691.6 +The location of the Company’s tangible long-lived assets, which is comprised of property, plant and equipment, is as follows: +(In millions) +December 30, +2017 +December 31, +2016 +January 3, +2015 +United States +$ +122.4 +$ +131.4 +$ +117.7 +Foreign countries +14.3 +14.7 +13.9 +Total +$ +136.7 +$ +146.1 +$ +131.6 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2017 , the Company sourced approximately 99% of its footwear products from third-party suppliers located primarily in the Asia Pacific region. For fiscal 2017 , the remainder was produced at a Company-owned manufacturing facility in the U.S., which was sold during the fourth quarter of fiscal 2017. All apparel and accessories are sourced from third-party suppliers. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +17. +RESTRUCTURING ACTIVITIES +2017 Plan +Beginning in the second quarter of fiscal 2017, the Company implemented certain organizational changes and initiated the sale of certain assets and a change to the distribution model for certain brands (the “2017 Plan”). See Note 18 for additional information on the divestitures and distribution model changes. The Company completed the 2017 Plan during the fourth quarter of fiscal 2017. The Company expects annual pretax benefits of approximately $ 11.0 million as a result of the 2017 Plan. Costs incurred related to the 2017 Plan have been recorded within the Corporate category. The cumulative costs incurred is $ 11.3 million , with +69 +Table of Contents +$ 1.5 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 9.8 million recorded in the restructuring and other related costs line item as a component of operating expenses. +The following is a summary of the activity during fiscal 2017, with respect to a reserve established by the Company in connection with the 2017 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at December 31, 2016 +$ +— +$ +— +$ +— +$ +— +Restructuring costs +7.6 +1.6 +2.1 +11.3 +Amounts paid +(4.3 +) +— +(0.3 +) +(4.6 +) +Charges against assets +— +(1.6 +) +(1.8 +) +(3.4 +) +Balance at December 30, 2017 +$ +3.3 +$ +— +$ +— +$ +3.3 +2016 Plan +On October 6, 2016, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations (the “2016 Plan”), which resulted in the closure of certain retail stores. The Company closed 266 retail stores in connection with the 2016 Plan, which was completed during the fourth quarter of fiscal 2017. The Company expects annual pretax benefits of approximately $ 20.0 million as a result of the 2016 Plan. Costs incurred related to the 2016 Plan have been recorded within the Corporate category. The cumulative costs incurred is $ 75.1 million , with $ 10.2 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 64.9 million recorded in the restructuring and other related costs line item as a component of operating expenses. +The following is a summary of the activity during fiscal 2017 and 2016, with respect to a reserve established by the Company in connection with the 2016 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at January 2, 2016 +$ +— +$ +— +$ +— +$ +— +Restructuring costs +0.8 +— +5.0 +5.8 +Amounts paid +— +— +(1.1 +) +(1.1 +) +Charges against assets +— +— +(2.7 +) +(2.7 +) +Balance at December 31, 2016 +$ +0.8 +$ +— +$ +1.2 +$ +2.0 +Restructuring costs +3.5 +9.4 +56.4 +69.3 +Amounts paid +(4.0 +) +— +(52.3 +) +(56.3 +) +Charges against assets +— +(9.4 +) +(3.9 +) +(13.3 +) +Balance at December 30, 2017 +$ +0.3 +$ +— +$ +1.4 +$ +1.7 +2014 Plan +On July 9, 2014, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations (the “2014 Plan”). As a part of the 2014 Plan, the Company closed 136 retail stores, consolidated certain consumer-direct support functions and implemented certain other organizational changes. The Company completed the 2014 Plan during the first quarter of fiscal 2016. Costs incurred related to the 2014 Plan have been recorded within the Corporate category. The cumulative costs incurred is $ 48.8 million , with $ 6.5 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 42.3 million recorded in the restructuring and other related costs line item as a component of operating expenses. +70 +Table of Contents +The following is a summary of the activity during fiscal 2017, 2016 and 2015, with respect to a reserve established by the Company in connection with the 2014 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at January 3, 2015 +$ +1.0 +$ +— +$ +6.5 +$ +7.5 +Restructuring costs +2.9 +5.4 +9.0 +17.3 +Amounts paid +(1.8 +) +— +(7.2 +) +(9.0 +) +Charges against assets +— +(5.4 +) +(1.8 +) +(7.2 +) +Balance at January 2, 2016 +$ +2.1 +$ +— +$ +6.5 +$ +8.6 +Restructuring costs +1.2 +0.2 +9.6 +11.0 +Amounts paid +(3.3 +) +— +(7.5 +) +(10.8 +) +Charges against assets +— +(0.2 +) +(6.9 +) +(7.1 +) +Balance at December 31, 2016 +$ +— +$ +— +$ +1.7 +$ +1.7 +Restructuring cost adjustment +— +— +(0.7 +) +(0.7 +) +Amounts paid +— +— +(1.0 +) +(1.0 +) +Balance at December 30, 2017 +$ +— +$ +— +$ +— +$ +— +Other Restructuring Activities +During fiscal 2017 and fiscal 2016, the Company recorded restructuring costs of $ 2.0 million and $ 13.9 million , respectively, in connection with certain organizational changes. The costs associated with these restructuring activities were recorded within the Company’s Corporate category in the restructuring and other related costs line item as a component of operating expenses. +During the fourth quarter of fiscal 2017, the Company recorded impairment costs of $ 68.6 million , related to indefinite-lived intangibles of its Sperry ® brand. The Company recorded these costs within its Corporate category in the impairment of intangible assets line item as a component of operating expenses in the consolidated statements of operations. +During the fourth quarters of fiscal 2016 and 2015, the Company recorded impairment costs of $ 7.1 million and $ 2.5 million , respectively, related to indefinite-lived intangibles of its Stride Rite ® brand. The Company recorded these costs within its Corporate category in the impairment of intangible assets line item as a component of operating expenses in the consolidated statements of operations. +The Company recorded impairment charges of $ 12.2 million and $ 11.6 million during fiscal 2016 and 2015, respectively, related to certain retail store assets where the estimated future cash flows did not support the net book value of the store assets. These costs were recorded within its corporate category in the restructuring and other related costs line item as a component of operating expenses in the consolidated statements of operations. +During fiscal 2015, the Company recorded of $ 4.2 million of costs related to its decision to wind-down operations of its Cushe ® brand. These costs included $ 2.6 million related to indefinite-lived intangibles and $ 1.6 million in other restructuring costs. The Company recorded these costs within its Corporate category in the impairment of intangible assets and restructuring and other related costs, respectively, line items as a component of operating expenses in the consolidated statements of operations and comprehensive income. During fiscal 2016, the Company recorded additional restructuring costs of $ 0.3 million related to the Cushe ® brand. +During fiscal 2015, the Company recorded restructuring costs of $ 2.0 million related to its international operations within its corporate category included in the restructuring and other related costs line item as a component of operating expenses in the consolidated statements of operations. +71 +Table of Contents +18. +DIVESTITURES +In the third quarter of fiscal 2017, the Company entered into a global, multi-year licensing agreement of the Stride Rite ® brand. As part of this agreement, the Company agreed to sell inventory and certain other assets and liabilities related to the Stride Rite ® brand and provide certain transition services to the licensee. The Company received cash and other consideration of $ 16.9 million for the sale of these assets and liabilities and recognized a gain of $ 0.2 million , which is included in the selling, general and administrative expenses line item on the consolidated statement of operations and comprehensive income. The assets and liabilities sold, which were included in the Wolverine Multi-Brand Group, are as follows: +(In millions) +Book Value +Inventory +$ +17.1 +Prepaid expenses and other current assets +1.4 +Other accrued liabilities +(1.8 +) +Total assets and liabilities sold +$ +16.7 +In the third quarter of fiscal 2017, the Company sold certain intangible and other assets related to the Sebago ® brand. As part of this agreement, the buyer acquired the intellectual property rights to design, manufacture and market all products under the Sebago ® brand. The Company received cash of $ 14.3 million and recognized a gain on sale of $ 8.4 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations and comprehensive income. The assets sold, which were included in the Wolverine Outdoor & Lifestyle Group, are as follows: +(In millions) +Book Value +Indefinite-lived intangibles +5.4 +Amortizable intangibles +0.2 +Total assets sold +$ +5.6 +In the third quarter of fiscal 2017, the Company sold its Department of Defense contract business, which was comprised of an owned manufacturing facility, the transfer of employees and certain associated assets. The goodwill allocated to the sale of the business was nominal. The Company received cash of $ 7.8 million and recognized a loss on sale of $ 1.6 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations and comprehensive income. The assets sold, which were included in the Wolverine Heritage Group and Other segment, are as follows: +(In millions) +Book Value +Inventory +$ +5.6 +Prepaid expenses and other current assets +0.5 +Property, plant and equipment +3.0 +Total assets sold +$ +9.1 +72 +Table of Contents +19. +QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) +Prior to fiscal 2017, the Company reported its quarterly results of operations on the basis of 12-week periods for each of the first three fiscal quarters and a 16 or 17-week period for the fiscal fourth quarter. Beginning in fiscal 2017, the Company's fiscal year is comprised of 13-week quarters for each of the first three fiscal quarters and a 13 or 14-week period for the fiscal fourth quarter. +The aggregate quarterly earnings per share amounts disclosed in the table below may not equal the annual per share amounts due to rounding and the fact that results for each quarter are calculated independently of the full fiscal year. The Company’s unaudited quarterly results of operations are as follows: +Fiscal 2017 +(In millions, except per share data) +13 Weeks Ended +April 1, 2017 +13 Weeks Ended +July 1, 2017 +13 Weeks Ended +September 30, 2017 +13 Weeks Ended +December 30, 2017 +Revenue +$ +591.3 +$ +598.8 +$ +581.3 +$ +578.6 +Gross profit +234.7 +226.9 +230.7 +222.1 +Net earnings (loss) attributable to Wolverine World Wide, Inc. +16.7 +20.7 +23.2 +(60.3 +) +Net earnings (loss) per share: +Basic +$ +0.17 +$ +0.21 +$ +0.24 +$ +(0.65 +) +Diluted +0.17 +0.21 +0.24 +(0.65 +) +Fiscal 2016 +(In millions, except per share data) +12 Weeks Ended +March 26, 2016 +12 Weeks Ended +June 18, 2016 +12 Weeks Ended +September 10, 2016 +16 Weeks Ended +December 31, 2016 +Revenue +$ +577.6 +$ +583.7 +$ +603.7 +$ +729.6 +Gross profit +228.8 +226.6 +237.3 +267.2 +Net earnings (loss) attributable to Wolverine World Wide, Inc. +17.4 +24.0 +48.2 +(1.9 +) +Net earnings (loss) per share: +Basic +$ +0.18 +$ +0.25 +$ +0.49 +$ +(0.02 +) +Diluted +0.18 +0.24 +0.49 +(0.02 +) +73 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of December 30, 2017 and December 31, 2016, and the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 30, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 30, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2017, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2018 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 27, 2018 +74 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017, based on the COSO criteria . +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries as of December 30, 2017 and December 31, 2016, and the related consolidated statements of operations, comprehensive income , stockholders' equity and cash flows for each of the three years in the period ended December 30, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) of the Company and our report dated February 27, 2018 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 27, 2018 +75 +Table of Contents +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 30, 2017 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 30, 2017 . +The effectiveness of the Company’s internal control over financial reporting as of December 30, 2017 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 30, 2017 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. +Other Information +None. +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine Worldwide to be held on May 3, 2018 . The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +Item 11. +Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +76 +Table of Contents +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 14. +Principal Accounting Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +PART IV +Item 15. +Exhibits, Financial Statement Schedules +(a) +The following documents are filed as part of this report: +(1) +Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• +Consolidated Statements of Operations for the Fiscal Years Ended December 30, 2017 , December 31, 2016 and January 2, 2016 . +• +Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 30, 2017 , December 31, 2016 and January 2, 2016 . +• +Consolidated Balance Sheets as of December 30, 2017 and December 31, 2016 . +• +Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2017 , December 31, 2016 and January 2, 2016 . +• +Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 30, 2017 , December 31, 2016 and January 2, 2016 . +• +Notes to the Consolidated Financial Statements. +• +Reports of Independent Registered Public Accounting Firm. +(2) +Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• +Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) +Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Exhibit Number +Document +3.1 +Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 19, 2015. +77 +Table of Contents +Exhibit Number +Document +4.1 +Senior Notes Indenture, dated August 30, 2016, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +4.2 +Form of 5.000% Senior Note due 2026. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +10.1 +Amended and Restated Stock Incentive Plan of 1999.* Incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009 . +10.2 +Amended and Restated Stock Incentive Plan of 2001.* Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.3 +Amended and Restated Stock Incentive Plan of 2003.* Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.4 +Amended and Restated Stock Incentive Plan of 2005.* Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.5 +Amended and Restated Directors’ Stock Option Plan.* Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.6 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.7 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.8 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.9 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.9. +10.10 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.10. +10.11 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.12 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.13 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* +10.14 +Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 16, 2012. +10.15 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.16 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.17 +2016 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.18 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.19 +Form of Performance Share Award Agreement (2015 - 2017 performance period).* Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.20 +Form of Performance Share Award Agreement (2016 - 2018 performance period).* Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.21 +2017 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +10.22 +Form of Performance Stock Unit Award Agreement (2017 - 2019 performance period).* Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +78 +Table of Contents +Exhibit Number +Document +10.23 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.24 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.25 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.25. +10.26 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.27 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.28 +Wolverine World Wide, Inc. Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.29 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.30 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.31 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016.* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 15, 2016. +10.32 +Limited Guarantee, dated as of May 1, 2012, entered into by Wolverine World Wide, Inc. in favor of Collective Brands, Inc. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.33 +Purchase Agreement, dated as of May 1, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.34 +Interim Agreement, dated as of May 1, 2012, by and among Wolverine World Wide, Inc., WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Golden Gate Capital Opportunity Fund, L.P. and Blum Strategic Partners IV, L.P. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.35 +Separation Agreement, dated as of May 1, 2012, by and between Wolverine World Wide, Inc. and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.36 +Amendment No. 1 to Separation Agreement, dated as of October 9, 2012, by and between the Company and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.37 +Amendment No. 1 to Purchase Agreement, dated as of October 9, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended September 8, 2012. +10.38 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.39 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +79 +Table of Contents +Exhibit Number +Document +10.40 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.41 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.42 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.43 +Receivables Purchase Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.44 +Amendment to the Receivables Purchase Agreement, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser, dated January 5, 2018. +10.45 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.46 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +21 +Subsidiaries of Registrant. +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101.INS +XBRL Instance Document +101.SCH +XBRL Taxonomy Extension Schema Document +101.CAL +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +XBRL Taxonomy Extension Label Linkbase Document +101.PRE +XBRL Taxonomy Extension Presentation Linkbase Document +* +Management contract or compensatory plan or arrangement. +Item 16. +Form 10-K Summary +Not applicable. +80 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: +February 27, 2018 +By: +/s/ Blake W. Krueger +Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +February 27, 2018 +Blake W. Krueger +/s/ Michael D. Stornant +Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) +February 27, 2018 +Michael D. Stornant +/s/ Jeffrey M. Boromisa +Director +February 27, 2018 +Jeffrey M. Boromisa +/s/ Gina R. Boswell +Director +February 27, 2018 +Gina R. Boswell +/s/ Roxane Divol +Director +February 27, 2018 +Roxane Divol +/s/ William K. Gerber +Director +February 27, 2018 +William K. Gerber +/s/ Joseph R. Gromek +Director +February 27, 2018 +Joseph R. Gromek +/s/ David T. Kollat +Director +February 27, 2018 +David T. Kollat +/s/ Brenda J. Lauderback +Director +February 27, 2018 +Brenda J. Lauderback +/s/ Nicholas T. Long +Director +February 27, 2018 +Nicholas T. Long +/s/ Timothy J. O’Donovan +Director +February 27, 2018 +Timothy J. O’Donovan +/s/ Michael A. Volkema +Director +February 27, 2018 +Michael A. Volkema +81 +Table of Contents +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +Column A +Column B +Column C +Column D +Column E +Additions +(In millions) +Balance at +Beginning of +Period +(1) +Charged to +Costs and +Expenses +(2) +Charged to +Other +Accounts +(Describe) +Deductions +(Describe) +Balance at +End of +Period +Fiscal year ended December 30, 2017 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +17.2 +$ +18.1 +— +$ +21.1 +(A) +$ +14.2 +Allowance for sales returns +16.3 +52.6 +— +56.3 +(B) +12.6 +Allowance for cash discounts +5.9 +17.9 +— +19.1 +(C) +4.7 +Inventory valuation allowances +18.0 +10.6 +— +17.1 +(D) +11.5 +Total +$ +57.4 +$ +99.2 +— +$ +113.6 +$ +43.0 +Fiscal year ended December 31, 2016 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +21.8 +$ +23.6 +— +$ +28.2 +(A) +$ +17.2 +Allowance for sales returns +16.3 +64.4 +— +64.4 +(B) +16.3 +Allowance for cash discounts +6.3 +21.0 +— +21.4 +(C) +5.9 +Inventory valuation allowances +17.3 +15.9 +— +15.2 +(D) +18.0 +Total +$ +61.7 +$ +124.9 +— +$ +129.2 +$ +57.4 +Fiscal year ended January 2, 2016 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +20.6 +$ +20.4 +— +$ +19.2 +(A) +$ +21.8 +Allowance for sales returns +15.9 +62.6 +— +62.2 +(B) +16.3 +Allowance for cash discounts +4.5 +21.1 +— +19.3 +(C) +6.3 +Inventory valuation allowances +11.4 +16.9 +— +11.0 +(D) +17.3 +Total +$ +52.4 +$ +121.0 +— +$ +111.7 +$ +61.7 +(A) +Accounts charged off, net of recoveries. +(B) +Actual customer returns. +(C) +Discounts given to customers. +(D) +Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2017/0000110471-18-000010/filing_metadata.csv b/raw/filings/0000110471/2017/0000110471-18-000010/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..444562cb04986a13f97491efd63e368796c8b0af --- /dev/null +++ b/raw/filings/0000110471/2017/0000110471-18-000010/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2018-02-27,2017-12-30,2018-02-27T20:39:02.000Z,0000110471-18-000010,wolverineform10-k2017.htm,FORM 10-K,15352490,1,0,https://www.sec.gov/Archives/edgar/data/110471/000011047118000010/wolverineform10-k2017.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047118000010/,2017,2017,1 diff --git a/raw/filings/0000110471/2017/0000110471-18-000010/item1.txt b/raw/filings/0000110471/2017/0000110471-18-000010/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..8b6eb6f260d54d1abce68661f52fba6ca0eeaf2f --- /dev/null +++ b/raw/filings/0000110471/2017/0000110471-18-000010/item1.txt @@ -0,0 +1,94 @@ +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, children’s footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following four operating segments, which the Company has determined to be reportable operating segments. During the second quarter of fiscal 2017, the components within the Wolverine Multi-Brand Group were realigned as the Company transitioned Stride Rite ® to a global license arrangement, which was effective on July 2, 2017. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, and Chaco ® footwear; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel and Keds ® footwear and apparel; +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear; and +• +Wolverine Multi-Brand Group , consisting of the Company’s Children’s footwear business and the Company's multi-brand consumer-direct businesses. The Children’s footwear business includes the Stride Rite ® licensed business, as well as children’s footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . +The reportable segments are engaged in designing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs, and environmental and other related costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. The Company’s Global Operations Group is responsible for sourcing, distribution, logistics and customer support. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. Financial information regarding the Company’s reportable segments and other operating categories and financial information by geographic area is found in Note 16 to the consolidated financial statements. +5 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Wolverine Outdoor & Lifestyle Group +Merrell ® : Merrell ® products (footwear/apparel/accessories) are created to empower amazing outdoor lives. Known for quality, durability, versatility and comfort, Merrell ® is focused on delivering gear with compelling technologies, performance features and inspired styling for use both on the trail and around town. Merrell ® footwear offers an assortment of products in strategic categories such as technical hike, trail, run, outdoor fitness, lifestyle and work for both men and women. Merrell ® footwear is sold in outdoor specialty retailers, sporting goods chains, department stores, internet and catalog retailers as well as Merrell ® stores and an eCommerce site. Merrell ® apparel and accessories extend to an active outdoor lifestyle with a versatile line of apparel built for both performance and lifestyle. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories including technical duffels and backpacks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion product - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Hush Puppies ® : In 1958, Hush Puppies ® introduced the world to shoes with casual style and an easygoing attitude made to relax in. The desire to create customers' "favorite pair of shoes" remains the measurement of success for Hush Puppies ® . Inspired by its beloved basset hound icon, Hush Puppies ® is easygoing and fun. Built-in comfort and fit features and proprietary technologies have made Hush Puppies ® a brand well known for comfort. In addition to a wholesale and licensed footwear business, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. +Chaco ® : The Chaco ® footwear line focuses primarily on performance sandals and closed-toe products for the outdoor enthusiast, including the Chaco ® proprietary LUVSEAT™ footbed for premium comfort. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers, as well as the Chaco ® eCommerce site. Chaco ® also features MyChacos custom designs for sandals. +2. +Wolverine Boston Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring ASV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Company-owned specialty retail stores and website. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, race, trail, Life on the Run and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +6 +Table of Contents +Keds ® : Keds ® is an authentic casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +3. +Wolverine Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes that incorporate innovative technologies to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) work and industrial; (ii) rugged outdoor for hunting; and (iii) lifestyle and heritage. The development of DuraShocks ® , MultiShox ® , Wolverine Fusion ® and Wolverine Compressor ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets industrial workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® rugged outdoor product lines incorporate DuraShocks ® and other technologies and comfort features into products designed for outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers that have active lifestyles. The brand also markets a line of work and rugged casual Wolverine ® brand apparel, and licenses its Wolverine ® brand for use on eyewear, gloves and socks. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and children. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +4. +Wolverine Multi-Brand Group +Children’s Footwear - The Children’s footwear business includes the Stride Rite ® licensed business, as well as children’s footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . With a history dating back to 1919, Stride Rite ® is an industry leader in children's footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Children's footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® are sold through its owned wholesale channel, consumer-direct websites and by a license partner. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes brick and mortar and eCommerce operations that sell and distribute footwear and apparel from the Company's brand portfolio and other brands. +7 +Table of Contents +Other Businesses +In addition to its reportable segments, the Company also operates a performance leather business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products directly to the retail customer without going through a Company distribution center and provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company also operates brick and mortar retail stores and eCommerce websites. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2017 or fiscal 2016 . +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more +8 +Table of Contents +meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license extends for more than five years and the Harley-Davidson ® license has a term through December 31, 2020. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 18, 2018, the Company had an order backlog of approximately $913 million compared to an order backlog of approximately $979 million at February 19, 2017. The February 19, 2017 order backlog contains $52 million related to fiscal 2017 divestitures. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2018 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +9 +Table of Contents +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Research and Development +In addition to normal and recurring product development, design and styling activities, the Company engages in research and development activities related to the development of new production techniques and to the improvement of the function, performance, reliability and quality of its branded footwear and other products. For example, the Company’s continuing relationship with the Biomechanics Evaluation Laboratory at Michigan State University has helped validate and refine specific biomechanical design concepts, such as Bounce ® , DuraShocks ® and Hidden Tracks ® comfort technologies that have been incorporated into the Company’s footwear. The Company also utilizes the research and testing capabilities of the Saucony ® human performance and innovation lab, with a particular focus on quantifying the interaction between footwear and runners’ strides. While the Company expects to continue to be a leading developer of footwear innovations, research and development costs do not represent a material portion of operating expenses. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. +Employees +As of December 30, 2017 , the Company had approximately 3,700 domestic and foreign production, office and sales employees. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2017/0000110471-18-000010/item13.txt b/raw/filings/0000110471/2017/0000110471-18-000010/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..d7a2a007152838de1cbac9cc05799e056a6d8573 --- /dev/null +++ b/raw/filings/0000110471/2017/0000110471-18-000010/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. \ No newline at end of file diff --git a/raw/filings/0000110471/2017/0000110471-18-000010/item9a.txt b/raw/filings/0000110471/2017/0000110471-18-000010/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..1f33268fd2fade4ec3920dac3ec3715b4e002387 --- /dev/null +++ b/raw/filings/0000110471/2017/0000110471-18-000010/item9a.txt @@ -0,0 +1,9 @@ +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 30, 2017 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 30, 2017 . +The effectiveness of the Company’s internal control over financial reporting as of December 30, 2017 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 30, 2017 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2017/0000110471-18-000010/rp_note.txt b/raw/filings/0000110471/2017/0000110471-18-000010/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000110471/2017/0000110471-18-000010/rpt_disclosure.txt b/raw/filings/0000110471/2017/0000110471-18-000010/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..0ad8ca01bb2c6a2dcda9c53751910677b6ba7dd7 --- /dev/null +++ b/raw/filings/0000110471/2017/0000110471-18-000010/rpt_disclosure.txt @@ -0,0 +1,46 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since January 1, 2017, the Company has not engaged in any "related person" transactions with its directors, executive officers or +holders of 5% or more of Company voting securities, affiliates or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. They require the Governance +Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must +review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +any employment compensation paid to an executive officer of the Company if the Compensation Committee approved or recommended to the Board of Directors for approval such compensation; +(2) +any compensation paid to a director for service as a director of the Company; +(3) +any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another +entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%; or +(4) +any transaction in which the Related Person's interest arises solely from the ownership of the Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend). +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and proxy statement, an executive officer, director or, to the extent information regarding such nominee is being +presented in a proxy or information statement relating to the election of that nominee as a director, nominee for election as a director; +(b) +beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +immediate family member * of any of the foregoing. +* Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers- and +fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person's home (other than a tenant or employee) +The +Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar +circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested +Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. +2018 +PROXY +STATEMENT +87 +Table of Contents +Additional Information \ No newline at end of file diff --git a/raw/filings/0000110471/2018/0000110471-19-000009/filing.txt b/raw/filings/0000110471/2018/0000110471-19-000009/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..468b12d29e92e370d3d016e13a5a21701ccd9404 --- /dev/null +++ b/raw/filings/0000110471/2018/0000110471-19-000009/filing.txt @@ -0,0 +1,4950 @@ +10-K +1 +wolverineform10-k2018.htm +FORM 10-K +Document +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 29, 2018 +or +¨ +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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware +38-1185150 +State or other jurisdiction of +incorporation or organization +(I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E., +Rockford, Michigan +49351 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Securities Exchange Act: +Title of each class +Name of each exchange on which registered +Common Stock, $1 Par Value +New York Stock Exchange +Securities registered pursuant to Section 12(g) of the Act: None +Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ +Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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. ¨ +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 þ Accelerated filer ¨ +Non-accelerated filer ¨ Smaller reporting company ¨ +Emerging growth company ¨ +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 Act. ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 29, 2018 , the last business day of the registrant’s most recently completed second fiscal quarter: $ 3,197,797,422 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 15, 2019 : 91,521,544 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting to be held May 2, 2019 are incorporated by reference into Part III of this report. +Table of Contents +Table of Contents +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +21 +Item 2. +Properties +21 +Item 3. +Legal Proceedings +21 +Item 4. +Mine Safety Disclosures +21 +Supplemental Item. +Executive Officers of the Registrant +21 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6. +Selected Financial Data +24 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +25 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +35 +Item 8. +Financial Statements and Supplementary Data +37 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +78 +Item 9A. +Controls and Procedures +78 +Item 9B. +Other Information +78 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +78 +Item 11. +Executive Compensation +78 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +78 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +78 +Item 14. +Principal Accounting Fees and Services +79 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +79 +Item 16. +Form 10-K Summary +82 +SIGNATURES +83 +Appendix A: Financial Statement Schedule +A-1 +3 +Table of Contents +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• +changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• +the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• +the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• +the inability to effectively manage inventory levels; +• +increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• +foreign currency exchange rate fluctuations; +• +currency restrictions; +• +capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; +• +the cost and availability of raw materials, inventories, services and labor for contract manufacturers; +• +labor disruptions; +• +changes in relationships with, including the loss of, significant wholesale customers; +• +risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; +• +risks related to expansion into new markets and complementary product categories as well as consumer-direct operations; +• +the impact of seasonality and unpredictable weather conditions; +• +changes in general economic conditions and/or the credit markets on the Company’s distributors, suppliers and retailers; +• +increase in the Company’s effective tax rates; +• +failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• +the risks of doing business in developing countries and politically or economically volatile areas; +• +the ability to secure and protect owned intellectual property or use licensed intellectual property; +• +the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; +• +the potential breach of the Company’s databases, or those of its vendors, which contain certain personal information or payment card data; +• +problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; +• +strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, and implementing new initiatives and ventures; +• +the risk of impairment to goodwill and other intangibles; +• +the success of the Company’s restructuring and realignment initiatives; and +• +changes in future pension funding requirements and pension expenses. +These uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +4 +Table of Contents +PART I +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following three operating segments, which the Company has determined to be reportable operating segments. During the first quarter of 2018, the Kids footwear business was realigned into the Wolverine Boston Group and the multi-brand consumer-direct component is now reported within the other category. All prior period disclosures have been restated to reflect these new reportable operating segments. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel and Chaco ® footwear; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® ; and +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-branded consumer-direct retail stores, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs and environmental and other related costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. The Company’s Global Operations Group is responsible for sourcing, distribution, logistics and customer support. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. +5 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Wolverine Outdoor & Lifestyle Group +Merrell ® : Merrell ® products (footwear/apparel/accessories) are created to empower amazing outdoor lives. Known for quality, durability, versatility and comfort, Merrell ® is focused on delivering gear with compelling technologies, performance features and inspired styling for use both on the trail and around town. Merrell ® footwear offers an assortment of products in strategic categories such as technical hike, trail, run, outdoor fitness, lifestyle and work for both men and women. Merrell ® footwear is sold in outdoor specialty retailers, sporting goods chains, department stores, internet and catalog retailers as well as Merrell ® stores and an eCommerce site. Merrell ® apparel and accessories extend to an active outdoor lifestyle with a versatile line of apparel built for both performance and lifestyle. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories including technical duffels and backpacks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion products - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire our consumers to live life on the bright side. We believe that optimism is contagious and that by encouraging positivity we can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Chaco ® : Chaco’s whitewater heritage and 30-year history of outfitting rafting guides has helped cement its place in the high-performance footwear space. Every product Chaco ® makes exists to connect life-loving explorers to the wonders of the world through all-terrain versatility, unmatched durability, and signature LUVSEAT™ footbed arch support. Consumers can demonstrate their own creativity and express themselves through the virtually limitless sandal customization options available through the MyChaco design program. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers. as well as through an eCommerce site and other leading internet retailers. +2. +Wolverine Boston Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring ASV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Sperry ® retail stores and an eCommerce site. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, race, trail, Life on the Run and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are +6 +Table of Contents +distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +Keds ® : Keds ® is an authentic casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +Kids Footwear: The Kids footwear business includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® are distributed primarily through premium and better lifestyle retailers, outdoor and sporting good retailers, as well as through an eCommerce site and by a license partner. +3. +Wolverine Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) trade work; (ii) outdoor recreation; and (iii) lifestyle and heritage. The development of DuraShocks ® and EPX Anti-Fatigue ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets skilled trade workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® outdoor recreation product lines incorporate DuraShocks ® and other technologies and comfort features into products designed for outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers looking for rugged and well-crafted casual boots and shoes. The brand also markets a line of work and rugged casual Wolverine ® brand apparel and socks, and licenses the Wolverine ® brand for use on eyewear, gloves and base layers. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company operates a performance leather business and a multi-brand consumer-direct business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages +7 +Table of Contents +over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfolio and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products to the retail customer and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company also operates brick and mortar retail stores and eCommerce sites. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2018 , 2017 or 2016 . +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +8 +Table of Contents +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license has a term through December 31, 2024 and the Harley-Davidson ® license has a term through December 31, 2022. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 17, 2019, the Company had an order backlog of approximately $971 million, compared to an order backlog of approximately $913 million at February 18, 2018. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2019 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing and +9 +Table of Contents +ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 16 to the consolidated financial statements. +Employees +As of December 29, 2018 , the Company had approximately 3,700 domestic and foreign production, office and sales employees. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. +Risk Factors +Risks Related to the Company’s Business +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s results of operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global, regional or local economic conditions, and how such conditions may impact them. Disposable income and consumer spending may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, inflation, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer spending could adversely affect demand for the Company’s products, which could adversely affect the Company's results of operations. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and consumer-direct footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able, or elect, to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own more recognized brands; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences quickly will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +10 +Table of Contents +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated, associate its brands with styles that are no longer popular and decrease demand for its products. Such failures could result in reduced sales, excess inventory, trade name impairments, lower gross margin and other adverse impacts on the Company’s operating results. +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions, including those due to changes in trade relations between the U.S. and other countries, may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, our foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits denominated in foreign currencies are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. The Company may seek to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, but the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on the Company’s business and results of operations. +11 +Table of Contents +Significant capacity constraints, production disruptions, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. The Company may experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products and, as a result, its operating results, are dependent on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases pigskin hides for its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have an adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success depends on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +12 +Table of Contents +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company’s consumer-direct operations have required, and will continue to require, a substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s consumer-direct operations, including its brick and mortar locations as well as its eCommerce and mobile channels, have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company has also made substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and employee-related costs. The success of our consumer-direct operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic, and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as damage its reputation and brands, and could have an adverse effect on the Company’s results of operations and financial position. +Expanding the Company’s brands into new markets and product categories and re-aligning its consumer-direct operations may be difficult and costly, and unsuccessful efforts to do so may adversely affect the Company’s brands and business. +As part of the Company’s growth strategy, it seeks to enhance the positioning of its brands, to extend its brands into complementary product categories and to expand geographically. The Company may not be able to successfully implement any or all of these growth strategies, and unsuccessful efforts to do so could have an adverse effect on its results of operations and financial position. +Part of the future growth and profitability of the Company’s consumer-direct operations is significantly dependent on the Company successfully developing its eCommerce and mobile platforms. The Company cannot be sure whether its eCommerce and mobile platforms will be successful. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are highly dependent on future weather conditions and its ability to react to changes in weather conditions. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets affecting our distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could have an adverse impact on the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact the Company's third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet consumers’ demands and, in turn, the Company's results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +13 +Table of Contents +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have an adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on non-cash undistributed earnings that it intends to permanently reinvest in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have an adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. The final determination of any of these examinations could have an adverse effect on the Company’s results of operations and financial position. +Failure of the Company’s third-party licensees and distributors to meet sales goals or to make timely payments on amounts owed to the Company could adversely affect the Company’s financial performance. +In many international markets, independent third-party licensees or distributors sell the Company’s products. Failure by the Company’s licensees or distributors to meet planned annual sales goals or to make timely payments on amounts owed to the Company could have an adverse effect on the Company’s business, results of operations and financial position. If a change in licensee or distributor becomes necessary, it may be difficult and costly to locate an acceptable substitute distributor or licensee and the Company may incur increased costs and experience substantial disruption and a resulting loss of sales and brand equity in the market where such licensee or distributor operates. +The Company’s reputation and competitive position depend on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could receive negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 200 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts have created significant global economic and political uncertainties that may have adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +Further, geo-political events in the countries and territories in which the Company markets or sources its products could have an adverse effect on the Company’s business. For example, in June 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the European Union (“Brexit”). The political and economic uncertainties surrounding Brexit in the United Kingdom and the European Union, and the terms of the United Kingdom’s withdrawal, once determined, could disrupt the free movement of goods, services, and people between the United Kingdom and the European Union, adversely impact investor and consumer confidence, decrease consumer discretionary spending, including on our products, and result in increased legal and regulatory complexities. Any of these effects, among others, could adversely affect our business, results of operations and financial condition. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which the Company operates could have an adverse effect on the +14 +Table of Contents +Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in China or any other market in which the Company operates, or in its industry. +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Global capital markets could enter a period of severe disruption and instability, which could have an adverse effect on debt and equity markets in the United States, which in turn could have a negative impact on the Company’s business, financial condition and results of operations. +The U.S. and global capital markets have experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may recur for a prolonged period of time or materially worsen in the future. +The Company may in the future have difficulty accessing capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels, European sovereign debt, Chinese economic slowdown or other global economic conditions could have an adverse effect on our business, financial condition and results of operations. +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive depends upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the licensor of any of these license agreements could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s inability to attract and retain executive managers and other key employees, or the loss of one or more executive managers or other key employees, could adversely affect the Company’s business. +The Company depends on its executive management and other key employees. In the footwear, apparel and consumer-direct markets, competition for key executive talent is intense and the Company’s failure to identify, attract or retain executive managers or other key employees could adversely affect its business. The Company must offer and maintain competitive compensation packages to effectively recruit and retain such individuals. Further, the loss of one or more executive managers or other key employees, or the Company’s failure to successfully implement succession planning, could adversely affect the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations in the countries and territories in which the Company operates and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care +15 +Table of Contents +and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could substantially harm the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company strives to comply with all applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If so, the Company may suffer damage to its reputation and be subject to proceedings or actions against it by governmental entities or others. Any such proceeding or action could hurt the Company’s reputation, force it to spend significant amounts to defend or change its practices, distract its management from operating the Company's business, increase its costs of doing business, and result in monetary liability. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to ensure it remains in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease, its opportunities for growth may be curtailed by its compliance capabilities or reputational harm and its potential liability for security breaches may increase. The Company is also subject to U.S. and international data privacy and cybersecurity laws and regulations, which may impose fines and penalties for noncompliance and may have an adverse effect on the Company's operations. For example, the European Union’s General Data Protection Regulation (the “GDPR”), which becomes effective in May 2018, extends the scope of the EU data protection law to all companies processing data of EU residents, regardless of the company's location, and imposes significant new requirements on how the Company collects, processes and transfers personal data. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may distract the Company’s management team and require it to undertake costly and time consuming remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could result in loss of business. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +In 2016, the European Union formally adopted the General Data Protection Regulation ("GDPR"), which applied in all European Union member states effective May 25, 2018. GDPR introduces new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. GDPR increases our responsibility and potential liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new data protection rules. Any failure to comply with these rules and related national laws of European Union member states, could lead to government enforcement actions and significant penalties against us, and could adversely affect our business, financial condition, cash flows and results of operations. Compliance with any of the foregoing laws and regulations can be costly. A violation of any laws or regulations relating to the collection or use of personal information could result in the imposition of fines against us. +16 +Table of Contents +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company's operations have become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible adverse impact on its financial condition and results of operations. While the Company maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses and would not remedy damage to its reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistics and distribution systems include computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. Therefore, its operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity depends upon the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected. +17 +Table of Contents +The Company’s business depends on effective marketing, advertising and promotional programs. +Consumer traffic and demand for the Company's merchandise is influenced by the Company’s advertising, marketing and promotional activities, the name recognition and reputation of its brands. Although the Company uses marketing, advertising and promotional programs to attract consumers through various media, including social media, database marketing and print, its competitors may spend more or use different approaches, which could provide them with a competitive advantage. The Company’s promotional activity and other programs may not be effective, may be perceived negatively or could require increased expenditures, which could adversely impact the Company’s business, results of operations and financial position. +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits of the acquisition on a timely basis or at all; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company may be unable to provide assurance that it will be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but it may nonetheless incur material costs in connection with an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +Maintenance and growth of the Company’s business depends upon the availability of adequate capital. +The maintenance and growth of the Company’s business depends on the availability of adequate capital, which in turn depends in large part on cash flow generated by the Company’s business and the availability of equity and debt financing. The Company cannot provide assurance that its operations will generate positive cash flow or that it will be able to obtain equity or debt financing on acceptable terms, or at all. Further, the Company cannot provide assurance that it will be able to finance any expansion plans. +An impairment of goodwill or other intangibles could have an adverse impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized, but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect the Company’s results of operations. +Changes in government regulation may increase the Company’s costs of compliance and failure to comply with government regulations or other standards may adversely affect its brands and business. +The Company’s business is affected by changes in government and regulatory policies in the U.S. and in foreign jurisdictions. New requirements relating to product safety and testing and new environmental requirements, as well as changes in tax laws, duties, tariffs and quotas, could have a negative impact on the Company’s ability to produce and market footwear at competitive prices. Failure to comply with such regulations, as well as to comply with ethical, social, product, labor and environmental standards, could also jeopardize the Company’s reputation and potentially lead to various adverse consumer actions, including boycotts. Any negative publicity about these types of concerns may reduce demand for the Company’s products. Damage to the Company’s reputation or loss of consumer confidence for any of these or other reasons could adversely affect the Company’s results of operations, as well as require additional resources to rebuild its reputation and brand value. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among +18 +Table of Contents +other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Various third parties could also bring actions against the Company alleging health-related or other harm arising from non-compliance. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. For example, regulatory actions, putative class actions lawsuits and individual lawsuits have been filed against the Company alleging claims relating to property damage, remediation and human health effects, among other claims, arising from the Company’s operations, including its handling, storage, treatment, transportation and/or disposal of waste. These claims are discussed in more detail in Note 16 to the consolidated financial statements. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company that might benefit the Company's stockholders. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to replace the majority of the Company's directors and take other corporate actions that may be beneficial to the Company’s stockholders. +There are risks, including stock market volatility, inherent in owning the Company’s common stock. +The market price and volume of the Company’s common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on the Company’s results of operations and financial position, or a change in opinion in the market regarding the Company’s business prospects or other factors, many of which may be outside the Company’s immediate control. Changes in the amounts and frequency of share repurchases or dividends also could adversely affect the value of the Company’s common stock. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• +In the wholesale business, sales of footwear are dependent on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• +Wholesale customers set the delivery schedule for shipments of the Company’s products, which could cause shifts of sales between quarters. +• +The Company's estimated annual tax rate is based on projections of our domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• +The Company's earnings are also sensitive to a number of factors that are beyond the Company’s control, including manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates +19 +Table of Contents +are based upon their own opinions and are often different from the Company’s estimates or expectations. If the Company’s operating results are below the estimates or expectations of public market analysts and investors, the Company’s stock price could decline. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and the Company may be unable to satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +The Company’s results of operations, financial position, and cash flows, and its ability to conduct business in international markets may be affected by legal, regulatory, political, and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political, and economic risks. These include: +• +the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• +compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• +unexpected changes in regulatory requirements; and +• +new tariffs or other barriers in some international markets, including China. +The Company is also subject to general political and economic risks in connection with our international operations, including: +• +political instability, including due to Brexit, and terrorist attacks; +• +differences in business culture; +• +different laws governing relationships with employees and business partners; +• +changes in diplomatic and trade relationships, including with China; and +• +general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States or foreign countries upon the import or export of our products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition, or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have an adverse effect on the Company’s business in the future or may require us to exit a particular market or significantly modify our current business practices. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company's internal control policies and procedures may not protect it from reckless or criminal acts committed by its employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in a adverse effect on the results of operations or financial condition. +20 +Table of Contents +Item 1B. +Unresolved Staff Comments +None. +Item 2. +Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 225,000 square feet in Rockford, Michigan, as well as a leased facility of approximately 136,000 square feet in Waltham, Massachusetts. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center of approximately 460,000 square feet in Howard City, Michigan; a leased distribution center of approximately 342,000 square feet in Ontario, Canada and a leased distribution center of approximately 125,000 square feet in Heerhugowaard, Netherlands. +The Company also leases and owns showrooms and other various facilities throughout the U.S., Canada, the United Kingdom, continental Europe, Hong Kong and China to meet its operational requirements. In addition, the Company operates 80 retail stores, primarily through leases with various third-party landlords, in the U.S. collectively occupying approximately 220,000 square feet. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. +Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. A discussion of legal matters is found in Note 16 to the consolidated financial statements. +Item 4. +Mine Safety Disclosures +Not applicable. +Supplemental Item. Executive Officers of the Registrant +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of January 31, 2019 . The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, they serve at the pleasure of management. +Name +Age +Positions held with the Company +Kyle Hanson +53 +Senior Vice President, General Counsel and Secretary +Michael Jeppesen +59 +President, Global Operations Group and Wolverine Heritage Group +Amy M. Klimek +45 +Senior Vice President, Global Human Resources +Blake W. Krueger +65 +Chairman of the Board, Chief Executive Officer and President +Todd Spaletto +47 +President, Wolverine Outdoor & Lifestyle Group +Michael D. Stornant +52 +Senior Vice President, Chief Financial Officer and Treasurer +Richard J. Woodworth +61 +President, Wolverine Boston Group +James D. Zwiers +51 +Executive Vice President +Kyle L. Hanson has served the Company as Senior Vice President, General Counsel and Secretary since June 2018. From March 2014 through June 2018 she was Vice President, General Counsel and Corporate Secretary at The Buckle, Inc., a publicly traded footwear and apparel retailer. From May 2001 through March 2014, she was General Counsel and Corporate Secretary at The Buckle, Inc. +Michael Jeppesen has served the Company as President, Global Operations Group since January 2012, and President, Wolverine Heritage Group since April 2016. +Amy M. Klimek has served the Company as Senior Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. From 2006 to October 2014, she served as Director of Human Resources. +Blake W. Krueger has served the Company as Chairman since January 2010 and as Chief Executive Officer and President since April 2007. +21 +Table of Contents +Todd Spaletto has served the Company as President, Wolverine Outdoor & Lifestyle Group since February 2017. From February 2011 to January 2017, he was President, Americas for The North Face, Inc., a supplier of outdoor apparel, equipment and footwear. +Michael D. Stornant has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. +Richard J. Woodworth has served the Company as President, Wolverine Boston Group since February 2016. From January 2016 to February 2016, he served as President, Lifestyle Group, which was realigned into the Wolverine Boston Group. From 2006 to 2015, he served as President, Saucony. +James D. Zwiers has served the Company as Executive Vice President since February 2017. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group. From March 2009 to June 2014, he served as Senior Vice President and President, Performance Group, which was realigned out of the Outdoor Group. +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The number of stockholders of record on February 15, 2019 , was 1,075. +A quarterly dividend of $0.10 per share was declared on February 12, 2019. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2019 . +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +Five-Year Cumulative Total Return Summary +22 +Table of Contents +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2018 . +Issuer Purchases of Equity Securities +Period +Total Number of Shares Purchased +Average Price Paid per Share +Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs +Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (September 30, 2018 to November 3, 2018) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +132,381,810 +Employee Transactions (2) +3,467 +$ +36.19 +Period 11 (November 4, 2018 to December 1, 2018) +Common Stock Repurchase Program (1) +2,352,398 +$ +33.51 +2,352,398 +$ +53,547,263 +Employee Transactions (2) +— +$ +— +Period 12 (December 2, 2018 to December 29, 2018) +Common Stock Repurchase Program (1) +788,955 +$ +32.87 +788,955 +$ +27,617,711 +Employee Transactions (2) +16,675 +$ +33.04 +Total for Fourth Quarter ended December 29, 2018 +Common Stock Repurchase Program (1) +3,141,353 +$ +33.35 +3,141,353 +$ +27,617,711 +Employee Transactions (2) +20,142 +$ +33.59 +(1) +The Company’s Board of Directors approved a common stock repurchase program on August 8, 2016 that authorizes the repurchase of up to $ 300.0 million in common stock over a four-year period. On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to the $ 27.6 million remaining under the previous repurchase program. The annual amount of any stock repurchases are restricted under the terms of the Company's Credit Agreement and senior notes indenture. +(2) +Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +23 +Table of Contents +Item 6. +Selected Financial Data +Five-Year Operating and Financial Summary (1) +Fiscal Year +(In millions, except per share data) +2018 +2017 +2016 +2015 +2014 +Summary of Operations +Revenue +$ +2,239.2 +$ +2,350.0 +$ +2,494.6 +$ +2,691.6 +$ +2,761.1 +Net earnings attributable to Wolverine World Wide, Inc. +200.1 +0.3 +87.7 +122.8 +133.1 +Net earnings per share of common stock: +Basic net earnings (2) +$ +2.07 +$ +— +$ +0.90 +$ +1.22 +$ +1.33 +Diluted net earnings (2) +2.05 +— +0.89 +1.20 +1.30 +Cash dividends declared +0.32 +0.24 +0.24 +0.24 +0.24 +Financial Position at Year-End +Total assets (3) +$ +2,183.1 +$ +2,399.0 +$ +2,431.7 +$ +2,434.4 +$ +2,491.3 +Debt (3)(4) +570.5 +782.6 +820.7 +809.8 +887.6 +(1) +This summary should be read in conjunction with the consolidated financial statements and the related notes, which are included in Item 8 of this Annual Report on Form 10-K. +(2) +Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for nonvested restricted common stock. Diluted earnings per share assume the exercise of dilutive stock options and the vesting of all outstanding restricted stock and units. +(3) +Total assets and Debt have been restated due to the adoption of ASU 2014-03 in fiscal 2016, which resulted in the reclassification of deferred financing costs from Deferred financing costs to Long-term debt. +(4) +Debt includes capital lease obligations. +24 +Table of Contents +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth ” and the Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 200 countries and territories at December 29, 2018 , including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At December 29, 2018 , the Company operated 80 retail stores in the U.S. and Canada and 42 consumer-direct eCommerce sites. +2018 FINANCIAL OVERVIEW +• +Revenue was $ 2,239.2 million for fiscal 2018 , representing a decrease of 4.7% compared to the prior year's revenue of $ 2,350.0 million . The decrease reflects the closure of retail stores ($ 66.0 million ), the change in business model for Stride Rite ® ($ 47.5 million ), the divestiture of the Sebago ® brand ($ 26.0 million ), and the sale of the Department of Defense contract business for Bates ® ($ 26.1 million ), partially offset by significant growth in eCommerce across all brands ($43.0 million). +• +Gross margin for fiscal 2018 was 41.1 %, an increase of 220 basis points from fiscal 2017 . The gross margin increase was driven primarily by favorable product mix, divestitures and portfolio changes, store closures, lower restructuring and other related costs and the favorable impact of foreign exchange. +• +Operating expenses decreased $213.4 million in fiscal 2018 , to $ 669.4 million . The decrease was driven by lower restructuring and other related costs ($72.9 million), lower impairment of intangible assets ($68.6 million), lower environmental and other related costs ($20.0 million), lower transformation costs ($37.7 million) and lower selling expenses ($29.1 million) due to the closure of certain retail stores in fiscal 2017, partially offset by higher advertising costs ($ 13.7 million ). +• +The effective tax rate in fiscal 2018 was 11.9 %, compared to 93.7 % in fiscal 2017 . The lower effective tax rate in fiscal 2018 reflects the positive net impact from one-time discrete items, primarily a voluntary pension contribution of $60.0 million and a lower U.S. corporate tax rate following enactment of the Tax Cuts and Jobs Act ("TCJA"). These benefits were partially offset by a shift in income between tax jurisdictions with differing tax rates, primarily associated with an increase in U.S. income compared to the prior year, that included restructuring and other related costs, impairment of intangible assets and organizational transformation costs. +• +The Company executed $ 174.7 million of share repurchases in fiscal 2018 at an average price of $32.65 per share. +• +The Company declared cash dividends of $ 0.32 per share in fiscal 2018 and $0.24 per share in fiscal 2017 . +25 +Table of Contents +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +Percent Change vs. Prior Year +(In millions, except per share data) +2018 +2017 +2016 +2018 +2017 +Revenue +$ +2,239.2 +$ +2,350.0 +$ +2,494.6 +(4.7 +)% +(5.8 +)% +Cost of goods sold +1,317.9 +1,426.6 +1,526.4 +(7.6 +) +(6.5 +) +Restructuring costs +— +9.0 +8.3 +(100.0 +) +8.4 +Gross profit +921.3 +914.4 +959.9 +0.8 +(4.7 +) +Selling, general and administrative expenses +654.1 +706.0 +754.1 +(7.4 +) +(6.4 +) +Restructuring and other related costs +— +72.9 +34.9 +(100.0 +) +108.9 +Impairment of intangible assets +— +68.6 +7.1 +(100.0 +) +866.2 +Environmental and other related costs +15.3 +35.3 +— +(56.7 +) +— +Operating profit +251.9 +31.6 +163.8 +697.2 +(80.7 +) +Interest expense, net +24.5 +32.1 +34.8 +(23.7 +) +(7.8 +) +Debt extinguishment and other costs +0.6 +— +18.1 +— +(100.0 +) +Other expense (income), net +(0.6 +) +10.1 +0.4 +(105.9 +) +* +Earnings (loss) before income taxes +227.4 +(10.6 +) +110.5 +* +(109.6 +) +Income tax expense (benefit) +27.1 +(9.9 +) +23.0 +(373.7 +) +(143.0 +) +Net earnings (loss) +200.3 +(0.7 +) +87.5 +* +(100.8 +) +Less: net earnings (loss) attributable to noncontrolling interests +0.2 +(1.0 +) +(0.2 +) +(120.0 +) +400.0 +Net earnings attributable to Wolverine World Wide, Inc. +$ +200.1 +$ +0.3 +$ +87.7 +* +(99.7 +)% +Diluted earnings per share +$ +2.05 +$ +— +$ +0.89 +— +% +(100.0 +)% +*Percentage change not meaningful +REVENUE +Revenue was $ 2,239.2 million for fiscal 2018 , representing a decrease of 4.7% compared to the prior year's revenue of $ 2,350.0 million . The decrease reflects the closure of retail stores ($ 66.0 million ), the change in business model for Stride Rite ® ($ 47.5 million ), the divestiture of the Sebago ® brand ($ 26.0 million ) and the sale of the Department of Defense contract business for Bates ® ($ 26.1 million ), partially offset by significant growth in eCommerce across all brands ($43.0 million). International revenue represented 32.8 %, 31.5 % and 28.2 % of total reported revenues in fiscal years 2018 , 2017 and 2016 , respectively. Changes in foreign exchange rates increased revenues by approximately $ 4.1 million in fiscal 2018 . +Revenue was $2,350.0 million for fiscal 2017, representing a decrease of 5.8% compared to the prior year's revenue of $2,494.6 million . The decrease reflects the closure of retail stores and the change in business model for Stride Rite ® ($159.3 million). Changes in foreign exchange rates decreased revenues by approximately $1.7 million in fiscal 2017. +GROSS MARGIN +For fiscal 2018 , the Company’s gross margin was 41.1 %, compared to 38.9 % in fiscal 2017 . The gross margin increase was driven by favorable product mix (70 basis points), divestitures and portfolio changes (75 basis points), store closures (20 basis points), lower restructuring and other related costs (40 basis points) and the favorable impact of foreign exchange (15 basis points). +For fiscal 2017, the Company’s gross margin was 38.9%, compared to 38.5% in fiscal 2016. The gross margin increase was driven primarily by product cost decreases (230 basis points), which were partially offset by store closures (90 basis points), negative mix in international markets (70 basis points), and the negative impact of foreign exchange (30 basis points). +OPERATING EXPENSES +Operating expenses decreased $213.4 million in fiscal 2018 , to $ 669.4 million . The decrease was driven by lower restructuring and other related costs ($72.9 million), lower impairment of intangible assets ($68.6 million), lower environmental and other related costs ($20.0 million), lower transformation costs ($37.7 million) and lower selling expenses ($29.1 million) due to the +26 +Table of Contents +closure of certain retail stores in fiscal 2017, partially offset by a higher investment in advertising ($ 13.7 million ) as part of the Company's growth agenda. +Operating expenses increased $90.5 million in fiscal 2017, to $890.5 million. The increase was driven by higher restructuring and other related costs ($38.0 million), higher impairment of intangible assets ($61.5 million), higher environmental and other related costs ($35.3 million), higher organizational transformation costs ($35.6 million) and higher incentive compensation expense ($12.9 million), partially offset by lower selling expenses ($32.1 million), lower retail store operating costs ($52.2 million), and lower advertising costs ($12.3 million). +INTEREST, OTHER AND TAXES +Net interest expense was $ 24.5 million , $ 32.1 million and $34.8 million in fiscal 2018, 2017 and 2016, respectively. The decreases from fiscal 2016 to fiscal 2017 and from fiscal 2017 to fiscal 2018 were driven by a lower effective interest rate on the Company's debt, lower average debt principal balances and higher interest income. +The Company incurred $0.6 million of debt extinguishment and other costs in connection with the refinancing of the Company's debt in the fourth quarter of fiscal 2018. +On December 22, 2017, the TCJA was enacted, which significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. +The effective tax rate in fiscal 2018 was 11.9 %, compared to 93.7 % in fiscal 2017 . The lower effective tax rate in fiscal 2018 reflects the positive net impact from one-time discrete items, primarily a voluntary pension contribution of $60.0 million and a lower U.S. corporate tax rate following enactment of the TCJA. These benefits were partially offset by a shift in income between tax jurisdictions with differing tax rates, primarily associated with an increase in U.S. income compared to the prior year, that included restructuring and other related costs, impairment of intangible assets and organizational transformation costs. +The Company’s effective tax rates in fiscal 2017 and fiscal 2016 were 93.7% and 20.8%, respectively. The higher effective tax rate in fiscal 2017 is due to higher expenses from restructuring activities in the U.S. resulting in a tax benefit, partially offset by incremental tax expense of $8.6 million related to TCJA. The TCJA net tax expense is comprised of $58.1 million related to the taxation of unremitted earnings of non-U.S. subsidiaries, which will be paid over eight years, and $3.0 million of other related taxes, partially offset by a non-cash adjustment of $52.5 million for the remeasurement of deferred tax balances at the new corporate tax rate of 21%. +In the fourth quarter of fiscal 2018, the Company completed the analysis and computations necessary to finalize the provisional amounts reported in fiscal 2017 prior to the expiration of the December 22, 2018 applicable measurement period. The Company adjusted the computation of transition tax and remeasurement of deferred taxes, previously reported in fiscal 2017, and reflected a $1.2 million adjustment in the fourth quarter of fiscal 2018 to finalize the accounting under Staff Accounting Bulletin 118 ("SAB 118"). +REPORTABLE OPERATING SEGMENTS +The Company’s portfolio of brands is organized into the following three operating segments, which the Company has determined to be reportable operating segments. During the first quarter of fiscal 2018, the Kids footwear business was realigned into the Wolverine Boston Group and the multi-brand consumer-direct component is now reported within the other category. All prior period disclosures have been restated to reflect these new reportable operating segments. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear and Sebago ® footwear and apparel; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® ; and +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-branded consumer-direct retail stores, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs, a foreign currency remeasurement gain recorded in the second quarter of fiscal 2018, a pension settlement loss related to the Company's purchase of pension annuity contracts in the fourth quarter of fiscal 2018 and environmental and other related costs. +27 +Table of Contents +On February 1, 2019, the Company implemented certain organizational changes. The Company is evaluating the impacts of these changes to its reportable operating segments, which will be reflected beginning with the first quarter of fiscal 2019. +The reportable operating segment results for fiscal years 2018 , 2017 and 2016 are as follows: +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2018 +2017 +Change +2017 +2016 +Change +REVENUE +Wolverine Outdoor & Lifestyle Group +$ +951.9 +$ +939.9 +$ +12.0 +1.3 +% +$ +939.9 +$ +883.1 +$ +56.8 +6.4 +% +Wolverine Boston Group +895.5 +988.8 +(93.3 +) +(9.4 +)% +988.8 +1,167.5 +(178.7 +) +(15.3 +)% +Wolverine Heritage Group +320.3 +327.9 +(7.6 +) +(2.3 +)% +327.9 +347.0 +(19.1 +) +(5.5 +)% +Other +71.5 +93.4 +(21.9 +) +(23.4 +)% +93.4 +97.0 +(3.6 +) +(3.7 +)% +Total +$ +2,239.2 +$ +2,350.0 +$ +(110.8 +) +(4.7 +)% +$ +2,350.0 +$ +2,494.6 +$ +(144.6 +) +(5.8 +)% +OPERATING PROFIT (LOSS) +Wolverine Outdoor & Lifestyle Group +$ +196.8 +$ +190.4 +$ +6.4 +3.4 +% +$ +190.4 +$ +163.8 +$ +26.6 +16.2 +% +Wolverine Boston Group +157.5 +153.6 +3.9 +2.5 +% +153.6 +131.7 +21.9 +16.6 +% +Wolverine Heritage Group +60.8 +53.3 +7.5 +14.1 +% +53.3 +50.8 +2.5 +4.9 +% +Other +3.1 +5.2 +(2.1 +) +(40.4 +)% +5.2 +3.3 +1.9 +57.6 +% +Corporate +(166.3 +) +(370.9 +) +204.6 +(55.2 +)% +(370.9 +) +(185.8 +) +(185.1 +) +99.6 +% +Total +$ +251.9 +$ +31.6 +$ +220.3 +697.2 +% +$ +31.6 +$ +163.8 +$ +(132.2 +) +(80.7 +)% +Further information regarding the reportable operating segments can be found in Note 17 to the consolidated financial statements. +Wolverine Outdoor & Lifestyle Group +The Outdoor & Lifestyle Group’s revenue increased $ 12.0 million , or 1.3% , in fiscal 2018 compared to fiscal 2017 . The increase was due to mid-single digit growth in Merrell ® and mid-single digit growth in Cat ® , partially offset by a $26.0 million decline related to the divestiture of the Sebago ® brand and a high-single digit decline for Hush Puppies ® . The Merrell ® revenue increase is the result of new product introductions, a strong at-once business, strength in the Hike, Work and Outdoor Life categories, and strong eCommerce growth that was partially offset by a $9.2 million decline due to store closures in 2017. The Cat ® increase is due to a business model change in certain international markets, as well as growth in the U.S. The Hush Puppies ® decrease is due to the exit of certain markets in Europe and poor sell-through in the U.S. and Canada. +The Outdoor & Lifestyle Group’s operating profit increased $ 6.4 million , or 3.4% , in fiscal 2018 compared to fiscal 2017 . The operating profit increase was due to the revenue growth from Merrell ® and Cat ® , partially offset by the decline in Hush Puppies ® . In addition, operating margin improved for Merrell ® and Cat ® . The Merrell ® improvement resulted from better product mix and retail store closures in 2017, partially offset by planned investments in growth. The Cat ® improvement is due to lower product costs. +The Outdoor & Lifestyle Group’s revenue increased $56.8 million , or 6.4% , in fiscal 2017 compared to fiscal 2016. The increase was due partially to a mid-single digit revenue increase for Merrell ® , a low-teens increase for Cat ® and a mid-teens increase for Chaco ® , partially offset by a low-teens revenue decline for Hush Puppies ® . The Merrell ® increase was due to expansion into the work category and eCommerce growth, partially offset by the closure of retail stores. The Cat ® increase was due to a business model change in certain international markets as well as growth in the U.S. The Chaco ® increase was driven by growth in the brand's sandal products within the U.S. market. The Hush Puppies ® decrease was due to the exit of certain markets in Europe and a strategic move away from lower margin customers in the U.S. and Canada. +The Outdoor & Lifestyle Group’s operating profit increased $26.6 million , or 16.2% , in fiscal 2017 compared to fiscal 2016. The operating profit increase was due to the revenue increase for Merrell ® , lower selling, general and administrative expenses for the Group due to the exit of certain businesses in Europe and headcount reductions, partially offset by higher advertising costs for Chaco ® . +Wolverine Boston Group +The Boston Group’s revenue decreased $ 93.3 million , or 9.4% , in fiscal 2018 compared to fiscal 2017 . The decrease was driven by the transition of the Stride Rite ® brand to a licensing model ($ 47.5 million ) and the closure of retail stores ($47.5 million) and a high-single digit decline for Saucony ® . This was partially offset by a low-single digit increase for Sperry ® wholesale and +28 +Table of Contents +eCommerce channels and a mid-single digit increase for Keds ® due to eCommerce growth. The Saucony ® decrease was due to lower demand for products in the U.S. wholesale channel, partially offset by growth in Europe. +The Boston Group’s operating profit increased $ 3.9 million , or 2.5% , in fiscal 2018 compared to fiscal 2017 . The increase was due to the closure of retail stores, higher operating profit for Keds ® due to the higher revenue and higher gross margin and higher operating profit for Sperry ® due to higher wholesale revenue. This was partially offset by lower operating profit from Saucony ® due to lower revenues. +The Boston Group’s revenue decreased $ 178.7 million , or 15.3% , in fiscal 2017 compared to fiscal 2016. The decline was due to the closure of retail stores ($104.4 million) and the transition of the Stride Rite ® brand to a licensing model ($35.3 million), in addition to high-single digit declines from Sperry ® and Keds ® . The Sperry ® decrease was due to lower wholesale demand for its core boat products and the closure of retail stores. The Keds ® decrease was due to the intentional exit of certain unprofitable points of distribution in the U.S. wholesale market. +The Boston Group’s operating profit increased $ 21.9 million , or 16.6% , in fiscal 2017 compared to fiscal 2016. The increase was due to the closure of retail stores and higher gross margin for Saucony ® and Keds ® and lower selling, general, and administrative expenses due to lower advertising spend and headcount reductions within the Group. +Wolverine Heritage Group +The Heritage Group’s revenue decreased $ 7.6 million , or 2.3% , in fiscal 2018 compared to fiscal 2017 . The revenue decrease was due to the sale of the Department of Defense contract business in the third quarter of 2017 ($ 26.1 million ), partially offset by high-single digit growth from Wolverine ® , which was driven by a mid-forties increase in eCommerce and a mid-single digit increase in U.S. wholesale channel resulting from strength in the Work category. +The Heritage Group’s operating profit increased $ 7.5 million , or 14.1% , in fiscal 2018 compared to fiscal 2017 . The operating profit increase was due to the higher revenue and gross margin improvement driven by product cost reduction for the Wolverine ® brand and the sale of the low-margin Department of Defense contract business. +The Heritage Group’s revenue decreased $19.1 million, or 5.5%, in fiscal 2017 compared to fiscal 2016. The revenue decline was the result of a mid-twenties decline from Bates ® , which was driven by decreases in the domestic contract business as well as the sale of the Department of Defense contract business in the third quarter of 2017. +The Heritage Group’s operating profit increased $2.5 million, or 4.9%, in fiscal 2017 compared to fiscal 2016. The operating profit increase was due to the improved margins for the Wolverine ® and HyTest ® brands and fewer contracts from the low-margin Department of Defense contract business. +Other +The Other category's revenue decreased $ 21.9 million , or 23.4% , in fiscal 2018 compared to fiscal 2017 . The revenue decrease is due to a high-teens decline in the performance leathers business due to lower demand and the closure of multi-brand retail stores ($9.3 million). The Other category's operating profit decreased $ 2.1 million , or 40.4% , in fiscal 2018 compared to fiscal 2017 , due to the performance leathers revenue decline. +The Other category’s revenue decreased $ 3.6 million , or 3.7% , in fiscal 2017 compared to fiscal 2016. The revenue decline was due to the closure of multi-brand retail stores, which was partially offset by a high-teens increase in the performance leathers business. The Other category's operating profit increased $1.9 million, or 57.6%, in fiscal 2017 compared to fiscal 2016. +Corporate +Corporate expenses decreased $ 204.6 million in fiscal 2018 compared to fiscal 2017 . Corporate expenses were impacted by the decrease in restructuring and other related costs ($72.9 million), lower impairment of intangible assets ($68.6 million), lower organizational transformation costs ($37.7 million) and lower environmental and other related costs ($20.0 million). +Corporate expenses increased $ 185.1 million in fiscal 2017 compared to fiscal 2016. Corporate expenses were impacted by the increase in restructuring and other related costs ($38.7 million), higher impairment of intangible assets ($61.5 million), higher organizational transformation costs ($35.6 million), higher environmental and other related costs ($35.3 million) and higher incentive compensation expenses ($12.9 million). +29 +Table of Contents +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) +2018 +2017 +2016 +Cash and cash equivalents +$ +143.1 +$ +481.0 +$ +369.8 +Debt (1) +570.5 +782.6 +820.7 +Available Revolving Credit Facility (2) +672.5 +597.5 +597.4 +Net cash provided by operating activities +97.5 +202.7 +296.3 +Net cash used in investing activities +(22.2 +) +(1.0 +) +(38.4 +) +Net cash used in financing activities +(404.5 +) +(98.0 +) +(79.5 +) +Additions to property, plant and equipment +21.7 +32.4 +55.3 +Depreciation and amortization +31.5 +37.2 +43.5 +(1) +Debt includes capital lease obligations. +(2) +Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Credit Facility. +Liquidity +Cash and cash equivalents of $ 143.1 million as of December 29, 2018 were $ 337.9 million lower compared to December 30, 2017 . The decrease is due primarily to $213.7 million in net payments on the Company's debt, share repurchases of $ 174.7 million and $21.7 million of capital expenditures, partially offset by cash provided by operating activities of $ 97.5 million . The Company had $ 672.5 million of borrowing capacity available under the Revolving Credit Facility as of December 29, 2018 . Cash and cash equivalents located in foreign jurisdictions totaled $ 92.6 million as of December 29, 2018 . +Cash flow from operating activities, along with borrowings on the Revolving Credit Facility, if any, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities are expected to be used to fund organic growth initiatives, reduce debt, pay dividends, repurchase the Company’s common stock and pursue acquisitions. +As a result of the TCJA, the Company recorded a $ 58.1 million liability during the fourth quarter of 2017 related to the taxation of unremitted earnings of non-U.S. subsidiaries, which is to be paid over the next seven years. The Company does not expect the remaining amounts to be paid to have a material impact on its current or future liquidity. +A detailed discussion of environmental remediation costs is found in Note 16 to the consolidated financial statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual site. As of December 29, 2018 , the Company has a reserve of $ 22.6 million , of which $ 11.5 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 11.1 million recorded in other liabilities and expected to be paid over the course of up to 30 years. The Company's remediation activity at the Tannery property, House Street site and other relevant disposal sites is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during fiscal 2018 was lower compared to fiscal 2017, due primarily to the wind-down of an accounts receivable financing program, inventory investments at the end of 2018 to support organic sales growth and an increase in contributions to its pension plans. The Company made contributions to its pension plans of $ 60.7 million , $ 11.3 million and $ 1.5 million in fiscal years 2018 , 2017 and 2016 , respectively. During 2018, working capital drove a use of cash of $ 137.9 million , which was driven by increases in accounts receivable of $95.0 million , inventories of $44.5 million and other operating assets of $17.8 million and a decrease in other operating liabilities of $19.3 million . These changes were partially offset by an increase in accounts payable of $40.6 million . +Cash from operations during fiscal 2017 was lower compared to fiscal 2016, due primarily to higher cash payments for restructuring activities of $45.4 million, changes in deferred income taxes of $75.8 million due to the impact of the TCJA and higher pension +30 +Table of Contents +contributions of $9.8 million, in addition to changes in working capital. During fiscal 2017, working capital balances drove a source of cash of $113.3 million, which primarily was driven by the favorable impact of lower inventories of $45.4 million and increases in accounts payable, income taxes payable and other operating liabilities of $11.2 million, $46.1 million and 13.0 million, respectively. +Investing Activities +The Company made capital expenditures of $ 21.7 million , $ 32.4 million and $ 55.3 million in fiscal years 2018 , 2017 and 2016 , respectively. The higher capital expenditures during fiscal 2017 and 2016 were due primarily to building improvements for the Company's Boston office and west coast distribution center, respectively. The majority of the Company's capital expenditures in all three years was for building improvements and information system enhancements. +During fiscal 2017, the Company received proceeds of $38.6 million related to the sale of a business and other assets. During fiscal 2016, the Company received proceeds of $7.8 million for the sale of a non-core business. +Financing Activities +On December 6, 2018, the Company amended its credit agreement (as amended, the "Credit Agreement"). The Credit Agreement includes a $ 200.0 million term loan facility (“Term Loan A”) and a $ 800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met. Term Loan A requires quarterly principal payments with a balloon payment due on December 6, 2023. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $800.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding borrowings under the Revolving Credit Facility of $ 125.0 million and outstanding letters of credit under the Revolving Credit Facility of $ 2.5 million as of December 29, 2018 . The outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +As of December 29, 2018 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.00% with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company’s debt at December 29, 2018 totaled $ 570.5 million , compared to $ 782.6 million at December 30, 2017 . The decrease was due primarily to voluntary principal payments of $175.6 million and scheduled principal payments on Term Loan A of $37.5 million. +The Company has various foreign revolving credit facilities with aggregate available borrowings of $ 4.0 million that are uncommitted and, therefore, each borrowing against the applicable facility is subject to approval by the lender. There were no borrowings against this facility at December 29, 2018 . +The Company repurchased $ 174.7 million , $ 42.3 million and $ 61.9 million of Company common stock in fiscal years 2018 , 2017 and 2016 , respectively, under stock repurchase plans. On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to the $ 27.6 million remaining under the previous repurchase program . In addition to the stock repurchase program activity, the Company acquired $ 8.8 million , $ 5.5 million and $ 4.9 million of shares in fiscal years 2018 , 2017 and 2016 , respectively, in connection with employee transactions related to stock incentive plans. +The Company declared cash dividends of $0.32 per share, $0.24 per share, and $0.24 per share in fiscal years 2018 , 2017 and 2016 respectively. Dividends paid totaled $ 28.6 million , $ 23.0 million and $ 23.5 million , for fiscal years 2018 , 2017 and 2016 , respectively. A quarterly dividend of $0.10 per share was declared on February 11, 2019 to shareholders of record on April 1, 2019. +NEW ACCOUNTING STANDARDS +Refer to Note 2 of the consolidated financial statements for information related to new accounting standards. +31 +Table of Contents +CRITICAL ACCOUNTING POLICIES +The preparation of the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s consolidated financial statements. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated fixed revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the purchase, shipment or delivery of branded products by or to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the fiscal year ended December 29, 2018 , related to the Company’s contract liabilities, was nominal. +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +Inventory +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by +32 +Table of Contents +performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company performs the second step of the goodwill impairment test to determine the impairment charge, if any. The second step involves a hypothetical allocation of the estimated fair value of the reporting unit to its net tangible and intangible assets (excluding goodwill) as if the reporting unit were newly acquired, which results in an implied fair value of the goodwill. The amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. No impairment charges were recognized for the Company's intangible assets during fiscal 2018. In the fourth quarter of fiscal 2017, as a result of its annual impairment testing, the Company recorded a $68.8 million impairment charge for the Sperry ® trade name. In the fourth quarter of fiscal 2016, as a result of its testing, the Company recorded a $ 7.1 million for the Stride Rite ® trade name. The Company did not recognize any impairment charges for goodwill during fiscal years 2018 , 2017 and 2016 . +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. No impairment charges were recognized for the Company's long-lived assets during fiscal 2018. The Company recorded impairment charges of $ 12.2 million and $ 11.6 million during fiscal years 2017 and 2016 , respectively, related to certain retail store assets where the estimated future cash flows did not support the net book value of the assets. +Environmental +Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Liabilities related to estimated remediation costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. +Retirement Benefits +The determination of the obligation and expense for retirement benefits depends upon the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent fiscal year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans' expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. +33 +Table of Contents +The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 4.46 % at December 29, 2018 , compared to 3.80 % at December 30, 2017 . Pension expense is also impacted by the expected long-term rate of return on plan assets, which is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension asset. The expected long-term rate of return on plan assets was 7.00 % and 7.25 % during fiscal 2018 and 2017, respectively. The Company has determined that the expected long-term rate of return on plan assets will be 6.75% for fiscal 2019. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the fiscal year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +On December 22, 2017, the U.S. enacted the TCJA, which significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. +Concurrent with the enactment of the tax reform legislation on December 22, 2017, the SEC staff issued guidance in SAB 118 to address concerns regarding the ability of a reporting entity to timely comply with the accounting requirements to recognize all the effects of the Act in the period of enactment. Under SAB 118, the Company had up to 12 months from the enactment date to complete the accounting for some or all of the income tax effects triggered by the enactment of the law. The Company recorded a provisional estimate of the expected tax liability as required under SAB 118 during fiscal 2017. In the fourth quarter of fiscal 2018, the Company completed the analysis and computations necessary to finalize the provisional amounts reported in fiscal 2017 prior to the expiration of the December 22, 2018 applicable measurement period. The Company adjusted the computation of transition tax and remeasurement of deferred taxes, previously reported in fiscal 2017, and reflected a $1.2 million adjustment in the fourth quarter of fiscal 2018 to finalize the accounting under SAB 118. +As a result of the TCJA, the Company now intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore not established a deferred tax liability on that amount of foreign unremitted earnings. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +OFF-BALANCE SHEET ARRANGEMENTS +The Company has no off-balance sheet arrangements as of December 29, 2018 . +34 +Table of Contents +CONTRACTUAL OBLIGATIONS +As of December 29, 2018 , the Company had the following payments under contractual obligations due by period: +(In millions) +Total +Less than +1 year +1-3 years +3-5 years +More than +5 years +Long-term debt obligations (1) +$ +710.6 +$ +155.2 +$ +63.0 +$ +209.1 +$ +283.3 +Capital lease obligations +0.4 +0.1 +0.3 +— +— +Operating lease obligations (2) +235.0 +31.8 +54.6 +40.7 +107.9 +Purchase obligations (3) +356.3 +356.3 +— +— +— +Supplemental Executive Retirement Plan +41.7 +3.8 +7.8 +8.2 +21.9 +Deferred compensation +1.9 +0.4 +0.8 +0.4 +0.3 +Dividends declared +7.9 +7.9 +— +— +— +TCJA transition obligation +28.0 +— +— +0.2 +27.8 +Minimum royalties +6.5 +1.5 +3.2 +1.8 +— +Minimum advertising +20.1 +3.1 +6.5 +6.9 +3.6 +Total (4) +$ +1,408.4 +$ +560.1 +$ +136.2 +$ +267.3 +$ +444.8 +(1) +Includes principal and interest payments on the Company’s long-term debt, net of the impact of an interest rate swap. Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 29, 2018 . Actual cash outflows may differ significantly due to changes in underlying interest rates. See Note 10 to the consolidated financial statements for additional information on the Company's interest rate swap. +(2) +Operating lease obligations represent the future minimum rental payments under the provisions of Financial Accounting Standards Board (“FASB") Accounting Standards Codification ("ASC") Topic 840, Leases ("ASC 840"). Beginning in fiscal 2019, lease obligations will be recorded on the Company's balance sheet as a lease liability. See Note 2 to the consolidated financial statements for a discussion of the Company's adoption of Accounting Standards Updates (“ASU”) 2016-02, Leases . +(3) +Purchase obligations related primarily to inventory and capital expenditure commitments. +(4) +The total amount of unrecognized tax benefits on the consolidated balance sheet at December 29, 2018 is $ 7.9 million . At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. +Under the provisions of FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Colombia, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Colombian peso, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At December 29, 2018 and December 30, 2017 , the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $ 225.1 million and $ 162.7 million , respectively, with maturities ranging up to 524 days. +35 +Table of Contents +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. The Company has a cross currency swap, which has been designated as a hedge of a net investment in a foreign operation. The hedge had a notional amount of $ 95.8 million as of December 29, 2018 and will mature on September 1, 2021 . At December 29, 2018 , a stronger U.S. dollar compared to certain foreign currencies, decreased the value of these investments in net assets by $ 20.3 million from their value at December 30, 2017 . At December 30, 2017 , a weaker U.S. dollar compared to foreign currencies, increased the value of these investments in net assets by $ 20.8 million from their value at December 31, 2016 . +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on borrowings used to finance acquisitions and working capital requirements. The Company’s total variable-rate debt was $ 325.0 million at December 29, 2018 and the Company held one interest rate swap agreement denominated in U.S. dollars that effectively converted $ 181.3 million to fixed-rate debt. The interest rate swap derivative instrument is held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be a net asset of $ 1.6 million at the end of fiscal 2018 . As of December 29, 2018 , the weighted-average interest rate on the Company’s variable-rate debt, net of the impact of the interest rate swap, was 3.41 %. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $ 1.4 million . +The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +36 +Table of Contents +Item 8. +Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +38 +Consolidated Statements of Comprehensive Income +39 +Consolidated Balance Sheets +40 +Consolidated Statements of Cash Flows +42 +Consolidated Statements of Stockholders' Equity +44 +Note 1. Summary of Significant Accounting Policies +46 +Note 2. New Accounting Standards +49 +Note 3. Earnings Per Share +50 +Note 4. Goodwill and Other Intangibles +51 +Note 5. Accounts Receivable +53 +Note 6. Revenue From Contracts With Customers +Note 7. Inventories +55 +Note 8. Debt +55 +Note 9. Property, Plant and Equipment and Operating Leases +57 +Note 10. Derivative Financial Instruments +57 +Note 11. Stock-Based Compensation +58 +Note 12. Retirement Plans +61 +Note 13. Income Taxes +64 +Note 14. Accumulated Other Comprehensive Income (Loss) +67 +Note 15. Fair Value Measurements +67 +Note 16. Litigation and Contingencies +68 +Note 17. Business Segments +70 +Note 18. Restructuring Activities +72 +Note 19. Divestitures +74 +Note 20. Quarterly Results of Operations (Unaudited) +75 +Reports of Independent Registered Public Accounting Firm +76 +37 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) +2018 +2017 +2016 +Revenue +$ +2,239.2 +$ +2,350.0 +$ +2,494.6 +Cost of goods sold +1,317.9 +1,426.6 +1,526.4 +Restructuring costs +— +9.0 +8.3 +Gross profit +921.3 +914.4 +959.9 +Selling, general and administrative expenses +654.1 +706.0 +754.1 +Restructuring and other related costs +— +72.9 +34.9 +Impairment of intangible assets +— +68.6 +7.1 +Environmental and other related costs +15.3 +35.3 +— +Operating profit +251.9 +31.6 +163.8 +Other expenses: +Interest expense, net +24.5 +32.1 +34.8 +Debt extinguishment and other costs +0.6 +— +18.1 +Other expense (income), net +(0.6 +) +10.1 +0.4 +Total other expenses +24.5 +42.2 +53.3 +Earnings (loss) before income taxes +227.4 +(10.6 +) +110.5 +Income tax expense (benefit) +27.1 +(9.9 +) +23.0 +Net earnings (loss) +200.3 +(0.7 +) +87.5 +Less: net earnings (loss) attributable to noncontrolling interests +0.2 +(1.0 +) +(0.2 +) +Net earnings attributable to Wolverine World Wide, Inc. +$ +200.1 +$ +0.3 +$ +87.7 +Net earnings per share (see Note 3): +Basic +$ +2.07 +$ +— +$ +0.90 +Diluted +$ +2.05 +$ +— +$ +0.89 +See accompanying notes to consolidated financial statements. +38 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income +Fiscal Year +(In millions) +2018 +2017 +2016 +Net earnings (loss) +$ +200.3 +$ +(0.7 +) +$ +87.5 +Other comprehensive income (loss) net of tax: +Foreign currency translation adjustments +(20.5 +) +21.1 +(6.6 +) +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $1.3, $(7.0) and $1.9 +14.4 +(16.0 +) +3.5 +Reclassification adjustments included in net earnings (loss), net of taxes of $(1.3), $(0.3) and $(1.7) +2.5 +(0.7 +) +(4.7 +) +Pension adjustments: +Net actuarial loss arising during the period, net of taxes of $(2.6), $(3.3) and $(11.2) +(9.9 +) +(6.0 +) +(20.8 +) +Amortization of prior actuarial losses, net of taxes of $0.7, $3.5 and $1.7 +2.6 +6.3 +3.2 +Amortization of prior service cost +— +— +0.1 +Curtailment gain arising during the period, net of taxes $0.8 in 2017 +— +1.5 +— +Settlement loss (gain), net of taxes of $1.5 in 2018 +5.7 +— +(0.1 +) +Other comprehensive income (loss) +(5.2 +) +6.2 +(25.4 +) +Less: other comprehensive income (loss) attributable to noncontrolling interests +(0.2 +) +0.3 +(0.4 +) +Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. +(5.0 +) +5.9 +(25.0 +) +Comprehensive income +195.1 +5.5 +62.1 +Less: comprehensive loss attributable to noncontrolling interest +— +(0.7 +) +(0.6 +) +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +195.1 +$ +6.2 +$ +62.7 +See accompanying notes to consolidated financial statements. +39 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) +December 29, +2018 +December 30, +2017 +ASSETS +Current assets: +Cash and cash equivalents +$ +143.1 +$ +481.0 +Accounts receivable, less allowances: +December 29, 2018 – $26.6 +December 30, 2017 – $31.5 +361.2 +271.3 +Inventories: +Finished products, net +301.4 +265.2 +Raw materials and work-in-process, net +16.2 +11.5 +Total inventories +317.6 +276.7 +Prepaid expenses and other current assets +45.8 +45.3 +Total current assets +867.7 +1,074.3 +Property, plant and equipment: +Gross cost +381.8 +391.1 +Accumulated depreciation +(250.9 +) +(254.4 +) +Property, plant and equipment, net +130.9 +136.7 +Other assets: +Goodwill +424.4 +429.8 +Indefinite-lived intangibles +604.5 +604.5 +Amortizable intangibles, net +71.9 +77.0 +Deferred income taxes +3.1 +4.3 +Other +80.6 +72.4 +Total other assets +1,184.5 +1,188.0 +Total assets +$ +2,183.1 +$ +2,399.0 +See accompanying notes to consolidated financial statements. +40 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets – continued +(In millions, except share data) +December 29, +2018 +December 30, +2017 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +202.3 +$ +162.3 +Accrued salaries and wages +31.9 +40.0 +Other accrued liabilities +106.4 +122.0 +Current maturities of long-term debt +7.5 +37.5 +Borrowings under revolving credit agreements and other short-term notes +125.0 +0.5 +Total current liabilities +473.1 +362.3 +Long-term debt, less current maturities +438.0 +744.6 +Accrued pension liabilities +92.0 +142.2 +Deferred income taxes +107.9 +84.2 +Other liabilities +80.5 +110.5 +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity: +Common stock – par value $1, authorized 320,000,000 shares; shares issued (including shares in treasury): +December 29, 2018 – 107,609,206 shares +December 30, 2017 – 106,405,449 shares +107.6 +106.4 +Additional paid-in capital +201.4 +149.2 +Retained earnings +1,169.7 +992.2 +Accumulated other comprehensive loss +(88.3 +) +(75.2 +) +Cost of shares in treasury: +December 29, 2018 – 15,905,681 shares +December 30, 2017 – 10,345,141 shares +(404.4 +) +(223.0 +) +Total Wolverine World Wide, Inc. stockholders’ equity +986.0 +949.6 +Noncontrolling interest +5.6 +5.6 +Total stockholders’ equity +991.6 +955.2 +Total liabilities and stockholders’ equity +$ +2,183.1 +$ +2,399.0 +See accompanying notes to consolidated financial statements. +41 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow +Fiscal Year +(In millions) +2018 +2017 +2016 +OPERATING ACTIVITIES +Net earnings (loss) +$ +200.3 +$ +(0.7 +) +$ +87.5 +Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: +Depreciation and amortization +31.5 +37.2 +43.5 +Deferred income taxes +22.1 +(75.8 +) +(5.8 +) +Stock-based compensation expense +31.2 +25.4 +22.8 +Excess tax benefits from stock-based compensation +— +— +(0.6 +) +Pension contribution +(60.7 +) +(11.3 +) +(1.5 +) +Pension and SERP expense +11.8 +14.9 +10.4 +Debt extinguishment costs +0.6 +— +17.4 +Restructuring and other related costs +— +81.9 +43.2 +Cash payments related to restructuring costs +(5.1 +) +(64.8 +) +(19.4 +) +Impairment of intangible assets +— +68.6 +7.1 +Environmental and other related costs, net of cash payments +(6.1 +) +32.3 +— +Loss/(gain) on sale of a business and other assets +0.3 +(7.0 +) +— +Other +9.5 +(11.3 +) +(6.3 +) +Changes in operating assets and liabilities: +Accounts receivable +(95.0 +) +(2.7 +) +32.3 +Inventories +(44.5 +) +45.4 +110.0 +Other operating assets +(17.8 +) +0.3 +2.3 +Accounts payable +40.6 +11.2 +(50.4 +) +Income taxes +(1.9 +) +46.1 +1.0 +Other operating liabilities +(19.3 +) +13.0 +2.8 +Net cash provided by operating activities +97.5 +202.7 +296.3 +INVESTING ACTIVITIES +Additions to property, plant and equipment +(21.7 +) +(32.4 +) +(55.3 +) +Proceeds from sale of a business and other assets +2.2 +38.6 +7.8 +Investment in joint venture +— +(2.1 +) +(0.5 +) +Other +(2.7 +) +(5.1 +) +9.6 +Net cash used in investing activities +(22.2 +) +(1.0 +) +(38.4 +) +FINANCING ACTIVITIES +Net borrowings (payments) under revolving credit agreements and other short-term notes +124.5 +(2.6 +) +3.1 +Borrowings of long-term debt +200.0 +— +400.0 +Payments on long-term debt +(538.2 +) +(37.5 +) +(393.8 +) +Payments of debt issuance and debt extinguishment costs +(2.7 +) +(0.1 +) +(17.9 +) +Cash dividends paid +(28.6 +) +(23.0 +) +(23.5 +) +Purchase of common stock for treasury +(174.7 +) +(51.5 +) +(52.7 +) +Purchases of shares under employee stock plans +(8.8 +) +(5.5 +) +(4.9 +) +Proceeds from the exercise of stock options +24.0 +21.4 +7.4 +Excess tax benefits from stock-based compensation +— +— +0.6 +Contributions from noncontrolling interests +— +0.8 +2.2 +Net cash used in financing activities +(404.5 +) +(98.0 +) +(79.5 +) +Effect of foreign exchange rate changes +(8.7 +) +7.5 +(2.7 +) +Increase (decrease) in cash and cash equivalents +(337.9 +) +111.2 +175.7 +Cash and cash equivalents at beginning of the year +481.0 +369.8 +194.1 +Cash and cash equivalents at end of the year +$ +143.1 +$ +481.0 +$ +369.8 +See accompanying notes to consolidated financial statements. +42 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow – continued +Fiscal Year +(In millions) +2018 +2017 +2016 +OTHER CASH FLOW INFORMATION +Interest paid +$ +29.0 +$ +31.5 +$ +33.7 +Net income taxes paid +17.4 +23.6 +35.4 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid +1.3 +0.8 +1.7 +Purchase of common stock for treasury not yet paid +— +— +9.2 +See accompanying notes to consolidated financial statements. +43 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at January 2, 2016 +$ +103.9 +$ +75.9 +$ +950.8 +$ +(56.1 +) +$ +(110.8 +) +$ +6.0 +$ +969.7 +Net earnings (loss) +87.7 +(0.2 +) +87.5 +Other comprehensive loss +(25.0 +) +(0.4 +) +(25.4 +) +Shares issued under stock incentive plans, net of forfeitures (1,200,527 shares) +1.2 +(1.3 +) +(0.1 +) +Shares issued for stock options exercised, net (530,585 shares) +0.5 +6.9 +7.4 +Stock-based compensation expense +22.8 +22.8 +Income tax benefits from stock incentive plans +(1.0 +) +(1.0 +) +Cash dividends declared ($0.24 per share) +(23.4 +) +(23.4 +) +Issuance of treasury shares (57,798 shares) +(0.1 +) +1.2 +1.1 +Purchase of common stock for treasury (2,838,919 shares) +(61.9 +) +(61.9 +) +Purchases of shares under employee stock plans (283,578 shares) +(4.8 +) +(4.8 +) +Capital contribution from noncontrolling interests +2.2 +2.2 +Balance at December 31, 2016 +$ +105.6 +$ +103.2 +$ +1,015.1 +$ +(81.1 +) +$ +(176.3 +) +$ +7.6 +$ +974.1 +Net earnings (loss) +0.3 +(1.0 +) +(0.7 +) +Other comprehensive income +5.9 +0.3 +6.2 +Shares forfeited, net of shares issued under stock incentive plans (488,655 shares) +(0.5 +) +0.3 +(0.2 +) +Shares issued for stock options exercised, net (1,247,064 shares) +1.3 +20.1 +21.4 +Stock-based compensation expense +25.4 +25.4 +Cash dividends declared ($0.24 per share) +(23.2 +) +(23.2 +) +Issuance of treasury shares (44,480 shares) +0.2 +0.9 +1.1 +Purchase of common stock for treasury (1,639,732 shares) +(42.3 +) +(42.3 +) +Purchases of shares under employee stock plans (227,464 shares) +(5.3 +) +(5.3 +) +Capital contribution from noncontrolling interests +0.8 +0.8 +Incremental investment in joint venture +(2.1 +) +(2.1 +) +Balance at December 30, 2017 +$ +106.4 +$ +149.2 +$ +992.2 +$ +(75.2 +) +$ +(223.0 +) +$ +5.6 +$ +955.2 +See accompanying notes to consolidated financial statements. +44 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at December 30, 2017 +$ +106.4 +$ +149.2 +$ +992.2 +$ +(75.2 +) +$ +(223.0 +) +$ +5.6 +$ +955.2 +Net earnings +200.1 +0.2 +200.3 +Other comprehensive loss +(5.0 +) +(0.2 +) +(5.2 +) +Shares forfeited, net of shares issued under stock incentive plans (154,084 shares) +(0.2 +) +(1.7 +) +(1.9 +) +Shares issued for stock options exercised, net (1,357,841 shares) +1.4 +22.6 +24.0 +Stock-based compensation expense +31.2 +31.2 +Cash dividends declared ($0.32 per share) +(30.7 +) +(30.7 +) +Issuance of treasury shares (7,761 shares) +0.1 +0.2 +0.3 +Purchase of common stock for treasury (5,349,262 shares) +(174.7 +) +(174.7 +) +Purchases of shares under employee stock plans (219,039 shares) +(6.9 +) +(6.9 +) +Change in accounting principle (see Note 2) +8.1 +(8.1 +) +— +Balance at December 29, 2018 +$ +107.6 +$ +201.4 +$ +1,169.7 +$ +(88.3 +) +$ +(404.4 +) +$ +5.6 +$ +991.6 +See accompanying notes to consolidated financial statements. +45 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years Ended December 29, 2018 , December 30, 2017 and December 31, 2016 +1. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids' footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® and Wolverine ® . Licensing and distribution arrangements with third parties extend the global reach of the Company’s brand portfolio. The Company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers, as well as a leathers division that markets Wolverine Performance Leathers™ . +Principles of Consolidation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2018, 2017 and 2016 all had 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +Effective December 31, 2017, the Company adopted ASU 2014-09, Revenue from Contracts with Customers , using the modified retrospective method. Under the modified retrospective method, the impact of applying the standard is recognized as a cumulative effect on retained earnings. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the year ended December 29, 2018 . Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. For additional information, refer to Note 6. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Shipping and Handling Costs +Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 120.8 million , $ 107.1 million and $ 121.5 million for fiscal years 2018 , 2017 and 2016 , respectively. Prepaid advertising totaled $ 1.5 million and $ 2.8 million as of December 29, 2018 and December 30, 2017 , respectively. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates market. +46 +Table of Contents +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +Inventories +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries; certain domestic finished goods inventories; and for all finished goods inventories of the Company’s consumer-direct business, due to the unique nature of those operations. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for computer hardware and software, store furniture and fixtures, office furniture and machinery and equipment. Normal repairs and maintenance are expensed as incurred. +Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings and improvements, from 5 to 10 years for leasehold improvements and from 3 to 10 years for machinery, equipment and software. +Operating Leases +The Company leases its retail stores and certain distribution and office facilities under operating leases. In addition to the minimum lease payments, leases may include rent escalation clauses, contingent rental expense and lease incentives, including rent holidays and tenant improvement allowances. Rent expense is recognized on a straight-line basis over the term of the lease from the time at which the Company takes possession of the property. Landlord-provided tenant improvement allowances are recorded in other liabilities and amortized as a credit to rent expense over the term of the lease. Leasehold improvements are depreciated at the lesser of the estimated useful life or lease term, including reasonably-assured lease renewals as determined at lease inception. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units. Goodwill is considered impaired if the recorded value of the tangible and intangible net assets exceeds the fair value of the reporting unit. +47 +Table of Contents +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair values. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year. See Note 4 to the consolidated financial statements for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +Environmental +Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Liabilities related to estimated remediation costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 12 to the consolidated financial statements for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2018, 2017 and 2016. +48 +Table of Contents +2. +NEW ACCOUNTING STANDARDS +The Financial Accounting Standards Board (“FASB”) issued the following ASUs that have been adopted by the Company during fiscal 2018 . The following is a summary of the effect of adoption of these new standards. +Standard +Description +Effect on the Financial Statements or Other Significant Matters +ASU 2014-09, Revenue from Contracts with Customers (as amended by ASUs 2015-14, 2016-08, 2016-10, 2016-11, 2016-12, 2016-20, 2017-13, and 2017-14) +The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. +The Company adopted the new revenue standard using the modified retrospective method at the beginning of the first quarter. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the year ended December 29, 2018. See Note 6 for the impact of the adoption of this standard, as well as additional disclosures around the Company’s revenue from contracts with customers. +ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities +Enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU addresses certain aspects of recognition, measurement, presentation and disclosure of financial statements. +The adoption of the new standard in fiscal 2018 did not have a material impact on the accounting for its financial assets and financial liabilities. +ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost +Sponsors of benefit plans would be required to present service cost in the same line item or items as other current employee compensation costs, and present the remaining components of net benefit cost in one or more separate line items outside of income from operations, while also limiting the components of net benefit cost eligible to be capitalized to service cost. +The Company now presents non-service pension costs as a component of Other expense (income), net. Non-services costs of $7.7 million and $3.9 million for fiscal years 2017 and 2016, respectively, have been retrospectively adjusted to Other expense (income) to conform with the new presentation. +ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities +Seeks to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities and to reduce the complexity of and simplify the application of hedge accounting. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness. +The Company reclassified $0.2 million of unrecognized losses related to its cross currency swap from accumulated other comprehensive income to retained earnings. This reclassification was effective as of the beginning of fiscal 2018. +ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income +Allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Adoption of this ASU will eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. +The Company reclassified $7.9 million of stranded tax effects resulting from the Tax Cuts and Jobs Act related to its cross currency swap and unamortized actuarial losses related to its pension plans from accumulated other comprehensive income to retained earnings. This reclassification was effective as of the beginning of fiscal 2018. +49 +Table of Contents +The FASB has issued the following ASUs that have not yet been adopted by the Company. The following is a summary of the planned adoption period and anticipated impact of adopting these new standards. +Standard +Description +Planned Period of Adoption +Effect on the Financial Statements or Other Significant Matters +ASU 2016-02, Leases (as amended by ASU 2018-11) +The core principle is that a lessee shall recognize a lease liability in its statement of financial position for the present value of all future lease payments. A lessee would also recognize a right-of-use asset representing its right to use the underlying asset for the lease term. Under a new transition method, a reporting entity will apply the new lease requirements at the effective date and continue to report comparative periods presented in the financial statements in the period of adoption under current GAAP. +Q1 2019 +Upon adoption in the first quarter of 2019, the Company will recognize a right-of-use asset and a lease liability for the present value of future minimum rental payments for its portfolio of operating leases. The Company estimates that the lease liability as of the adoption on the first day of fiscal 2019 will be between $165.0 million and $185.0 million. The Company does not expect adoption of this standard will have a material impact on its results of operations or cash flows. The Company plans to adopt the new standard using the modified retrospective approach and elect the package of practical expedients for leases existing as of the transition date. +ASU 2016-13, Measurement of Credit Losses on Financial Instruments +Seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. +Q1 2020 +The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables. +3. +EARNINGS PER SHARE +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +50 +Table of Contents +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) +2018 +2017 +2016 +Numerator: +Net earnings attributable to Wolverine World Wide, Inc. +$ +200.1 +$ +0.3 +$ +87.7 +Adjustment for earnings allocated to nonvested restricted common stock +(7.5 +) +— +(2.1 +) +Net earnings used to calculate basic earnings per share +192.6 +0.3 +85.6 +Adjustment for earnings (loss) reallocated to nonvested restricted common stock +1.8 +(0.2 +) +0.1 +Net earnings used to calculate diluted earnings per share +$ +194.4 +$ +0.1 +$ +85.7 +Denominator: +Weighted average shares outstanding +94.8 +96.4 +99.0 +Adjustment for nonvested restricted common stock +(1.8 +) +(2.7 +) +(3.7 +) +Shares used to calculate basic earnings per share +93.0 +93.7 +95.3 +Effect of dilutive stock options +2.0 +1.7 +0.9 +Shares used to calculate diluted earnings per share +95.0 +95.4 +96.2 +Net earnings per share: +Basic +$ +2.07 +$ +— +$ +0.90 +Diluted +$ +2.05 +$ +— +$ +0.89 +Options granted to purchase 25,230 , 1,753,869 and 3,100,328 shares in fiscal years 2018 , 2017 and 2016 , respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 29, 2018 or December 30, 2017 . The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company repurchased $ 174.7 million , $ 42.3 million and $ 61.9 million of Company common stock in fiscal years 2018 , 2017 and 2016 , respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 8.8 million , $ 5.5 million and $ 4.9 million of shares in fiscal years 2018 , 2017 and 2016 , respectively, in connection with employee transactions related to stock incentive plans. +On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to amounts remaining under the previous repurchase program. The annual amount of stock repurchases is restricted under the terms of the Company's Credit Agreement. +4. +GOODWILL AND OTHER INTANGIBLE ASSETS +The changes during fiscal years 2018 and 2017 in the carrying amount of goodwill and indefinite-lived intangibles, which comprises trademarks and trade names, is as follows: +(In millions) +Goodwill +Indefinite-lived intangibles +Total +Balance at December 31, 2016 +$ +424.3 +$ +678.5 +$ +1,102.8 +Impairment +— +(68.6 +) +(68.6 +) +Sale of a business +— +(5.4 +) +(5.4 +) +Foreign currency translation effects +5.5 +— +5.5 +Balance at December 30, 2017 +$ +429.8 +$ +604.5 +$ +1,034.3 +Foreign currency translation effects +(5.4 +) +— +(5.4 +) +Balance at December 29, 2018 +$ +424.4 +$ +604.5 +$ +1,028.9 +51 +Table of Contents +No impairment charges were recognized for the Company's goodwill or intangible assets during fiscal 2018. In the fourth quarter of fiscal 2017, as a result of its annual impairment testing, the Company recognized a $ 68.6 million impairment charge for the Sperry ® trade name. If the operating results for Sperry ® were to decline in future periods, the Company may need to record an additional non-cash impairment charge. The carrying value of the Company’s Sperry ® trade name indefinite-lived intangible asset was $ 518.2 million as of December 29, 2018 . +In the third quarter of fiscal 2017, the Company sold the intangible assets related to its Sebago ® brand from the Outdoor & Lifestyle Group operating segment. See Note 19 for additional information. +The Company did not recognize any impairment charges during fiscal years 2018, 2017 or 2016 for goodwill. The annual impairment testing indicated, for all reporting units tested quantitatively, that their fair values exceeded their respective carrying values. For the reporting units that the Company elected to test qualitatively, as is permitted under ASU 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment , the Company concluded it to be more likely than not that their estimated fair values are greater than their respective carrying values. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. They consist primarily of customer relationships, licensing arrangements and developed product technology. The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows: +December 29, 2018 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +14 +$ +100.5 +$ +31.7 +$ +68.8 +Other +3 +14.6 +11.5 +3.1 +Total +$ +115.1 +$ +43.2 +$ +71.9 +December 30, 2017 +(In millions) +Average remaining life (years) +Gross carrying +value +Accumulated +amortization +Net +Customer relationships +15 +$ +100.5 +$ +26.6 +$ +73.9 +Other +3 +13.5 +10.4 +3.1 +Total +$ +114.0 +$ +37.0 +$ +77.0 +Amortization expense for these amortizable intangible assets was $ 6.2 million , $ 9.4 million and $ 14.0 million for fiscal years 2018 , 2017 and 2016 , respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 29, 2018 is as follows: +(In millions) +2019 +2020 +2021 +2022 +2023 +Amortization expense +$ +6.1 +$ +5.8 +$ +5.6 +$ +5.4 +$ +5.1 +52 +Table of Contents +5. +ACCOUNTS RECEIVABLE +The Company has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis that expires in the fourth quarter of fiscal 2019. Under the agreement, up to $ 150.0 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheet, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability for all periods presented. For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. During the third quarter of fiscal 2018, the Company discontinued selling accounts receivable under the agreement. The Company continued to service the outstanding receivables sold to the financial institution until they were collected during the fourth quarter of fiscal 2018. The following is a summary of the stated amount of accounts receivable that was sold as well as fees charged by the financial institution. +Fiscal Year +(In millions) +2018 +2017 +2016 +Accounts receivable sold +$ +264.3 +$ +558.3 +$ +614.9 +Fees charged +1.3 +2.1 +1.7 +The fees are recorded in the Other expenses line item on the consolidated statements of operations. Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows. This program reduced the Company's accounts receivable by $ 0 and $ 70.1 million as of December 29, 2018 and December 30, 2017 , respectively. +6. +REVENUE FROM CONTRACTS WITH CUSTOMERS +Adoption of ASC Topic 606, "Revenue from Contracts with Customers" +The Company has adopted ASU 2014-09, Revenue from Contracts with Customers , using the modified retrospective method applied to all contracts as of the date of application. The Company elected the practical expedient to not adjust customer consideration for the effects of a financing component given, at contract inception, the Company’s customers are expected to pay for goods in one year or less. The Company also elected the practical expedient to expense costs associated with obtaining customer contracts given the associated performance obligation is less than one year. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the good transfers to the customer as fulfillment activities. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated fixed revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the purchase, shipment or delivery of branded products by or to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. +The Company holds agreements to license symbolic intellectual property with minimum guarantees or fixed consideration. The Company recognizes the fixed consideration using time as an appropriate measure of progress and recognizes royalties only when cumulative royalties exceed the minimum guarantee. The Company believes time is the appropriate measure of progress and best represents a faithful depiction of the transfer of goods under the contract. The Company has $ 45.8 million of remaining fixed transaction price under its license agreements as of December 29, 2018 , which it expects to recognize per the terms of its contracts over the course of time through December 2024 . The Company has elected to omit the remaining variable consideration under its +53 +Table of Contents +license agreements given the Company recognizes revenue equal to what it has the right to invoice and that amount corresponds directly with the value to the customer of the Company’s performance to date. +The Company provides disaggregated revenue by sales channel including the wholesale and consumer-direct sales channels reconciled to the Company’s reportable operating segments. The wholesale channel includes royalty revenues given the similarity in the Company’s oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation. +Fiscal Year +(in millions) +2018 +2017 +2016 +Wolverine Outdoor & Lifestyle Group: +Wholesale +$ +828.5 +$ +829.3 +$ +778.6 +Consumer-direct +123.4 +110.6 +104.5 +Total +951.9 +939.9 +883.1 +Wolverine Boston Group: +Wholesale +762.0 +814.5 +894.4 +Consumer-direct +133.5 +174.3 +273.1 +Total +895.5 +988.8 +1,167.5 +Wolverine Heritage Group: +Wholesale +300.7 +315.0 +338.0 +Consumer-direct +19.6 +12.9 +9.0 +Total +320.3 +327.9 +347.0 +Other: +Wholesale +64.1 +74.3 +63.3 +Consumer-direct +7.4 +19.1 +33.7 +Total +71.5 +93.4 +97.0 +Total revenue +$ +2,239.2 +$ +2,350.0 +$ +2,494.6 +Reserves for Variable Consideration +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the fiscal year ended December 29, 2018 , related to the Company’s contract liabilities, was nominal. +The Company’s contract balances are as follows: +(In millions) +December 29, +2018 +December 30, +2017 +Product returns reserve +$ +13.6 +$ +12.6 +Customer rebates liability +12.8 +10.4 +Customer markdowns reserve +4.0 +6.4 +Other sales incentives reserves +2.3 +3.3 +Customer advances liability +3.8 +6.7 +The amount of variable consideration included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from initial estimates. If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. +54 +Table of Contents +Product Returns +Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and a reduction to trade receivables, net on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. +Rebates +The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. +Markdowns +Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. +Other Sales Incentives +The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. +Customer Advances +The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract liabilities) on the consolidated balance sheets. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances from customers, before revenue is recognized, resulting in contract liabilities. Customer advances are recorded in the Other accrued liabilities line item on the consolidated balance sheets. +7. +INVENTORIES +The Company used the LIFO method to value inventories of $ 61.1 million and $ 53.2 million at December 29, 2018 and December 30, 2017 , respectively. During fiscal 2018, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior years. This LIFO liquidation decreased cost of goods sold by $ 4.6 million . If the FIFO method had been used, inventories would have been $ 11.8 million and $ 16.4 million higher than reported at December 29, 2018 and December 30, 2017 , respectively. +8. +DEBT +Total debt consists of the following obligations: +(In millions) +December 29, +2018 +December 30, +2017 +Term Loan A, due December 6, 2023 +$ +200.0 +$ +538.1 +Senior Notes, 5.000% interest, due September 1, 2026 +250.0 +250.0 +Borrowings under revolving credit agreements and other short-term notes +125.0 +0.5 +Capital lease obligation +0.4 +0.5 +Unamortized deferred financing costs +(4.9 +) +(6.5 +) +Total debt +$ +570.5 +$ +782.6 +On December 6, 2018, the Company amended its credit agreement (as amended, the "Credit Agreement"). The Credit Agreement includes a $ 200.0 million term loan facility (“Term Loan A”) and an $ 800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met. Term Loan A requires quarterly principal payments +55 +Table of Contents +with a balloon payment due on December 6, 2023. The scheduled principal payments due over the next 12 months total $ 7.5 million as of December 29, 2018 and are recorded as current maturities of long-term debt on the consolidated balance sheets. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $800.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had outstanding borrowings under the Revolving Credit Facility of $ 125.0 million as of December 29, 2018. The Company also had outstanding letters of credit under the Revolving Credit Facility of $ 2.5 million as of December 29, 2018 and December 30, 2017 . These outstanding borrowings and letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +The interest rates applicable to amounts outstanding under Term Loan A and to U.S. dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125% to 0.750% , or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125% to 1.750% (all capitalized terms used in this sentence are as defined in the Credit Agreement). The Company has an interest rate swap arrangement that reduces the Company’s exposure to fluctuations in interest rates on its variable rate debt. At December 29, 2018 , Term Loan A and the Revolving Credit Facility had weighted-average interest rates of 3.25 % and 3.65% , respectively. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Credit Agreement also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Credit Agreement requires compliance with the following financial covenants: a maximum Consolidated Leverage Ratio; a maximum Consolidated Secured Leverage Ratio; and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Credit Agreement). As of December 29, 2018 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.00% with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company has a foreign Revolving Credit Facility with aggregate available borrowings of $ 4.0 million that are uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender. There were no borrowings against this facility as of December 29, 2018 and $ 0.5 million outstanding as of December 30, 2017 . +The Company has a capital lease obligation with payments scheduled to continue through February 2022. +The Company included in interest expense the amortization of deferred financing costs of $ 2.8 million , $2.8 million , and $3.1 million in fiscal years 2018 , 2017 and 2016 , respectively. +Annual maturities of debt, including capital leases, for the fiscal years subsequent to December 29, 2018 are as follows: +(In millions) +2019 +2020 +2021 +2022 +2023 +Thereafter +Annual maturities of debt +$ +132.5 +$ +12.7 +$ +10.2 +$ +10.0 +$ +160.0 +$ +250.0 +56 +Table of Contents +9. +PROPERTY, PLANT AND EQUIPMENT AND OPERATING LEASES +Property, plant and equipment consisted of the following: +(In millions) +December 29, +2018 +December 30, +2017 +Land +$ +3.9 +$ +4.0 +Buildings and improvements +108.8 +103.5 +Machinery and equipment +162.5 +171.0 +Software +106.6 +112.6 +Gross cost +381.8 +391.1 +Less: accumulated depreciation +250.9 +254.4 +Property, plant and equipment, net +$ +130.9 +$ +136.7 +Depreciation expense was $ 25.3 million , $ 27.8 million and $ 29.5 million for fiscal years 2018 , 2017 and 2016 , respectively. +The Company leases machinery, equipment and certain warehouse, office and retail store space under operating lease agreements that expire at various dates through 2035. Certain leases contain renewal provisions and generally require the Company to pay utilities, insurance, taxes and other operating expenses. +Rental expense under all operating leases, consisting primarily of minimum rentals, totaled $ 32.0 million , $ 39.9 million and $ 55.5 million in fiscal years 2018 , 2017 and 2016 , respectively. The Company recognized sublease income of $ 2.8 million , $ 1.9 million , and $ 0.9 million in fiscal years 2018 , 2017 and 2016 , respectively. +Future minimum rental payments due under noncancelable lease under the provisions of ASC 840, for the fiscal years subsequent to December 29, 2018 , are as follows: +(In millions) +2019 +2020 +2021 +2022 +2023 +Thereafter +Minimum rental payments +$ +31.8 +$ +28.4 +$ +26.2 +$ +23.7 +$ +17.0 +$ +107.9 +As of December 29, 2018 , the Company is due $ 21.9 million in future rentals under noncancelable subleases. +10. +DERIVATIVE FINANCIAL INSTRUMENTS +The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which is intended to improve transparency in financial reporting and requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. +The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extend out to a maximum of 524 days and 356 days as of December 29, 2018 and December 30, 2017 , respectively. The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency translation exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has an interest rate swap arrangement, which unless otherwise terminated, will mature on July 13, 2020 . This agreement, which exchanges floating rate for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts, has been designated as a cash flow hedge of the debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. +The Company has a cross currency swap to minimize the impact of exchange rate fluctuations. The hedging instrument, which, unless otherwise terminated, will mature on September 1, 2021 , has been designated as a hedge of a net investment in a foreign operation. The Company will pay 2.75 % on the euro-denominated notional amount and receive 5.00 % on the U.S. dollar notional amount, with an exchange of principal at maturity. Changes in fair value related to movements in the foreign currency exchange spot rate are recorded in accumulated other comprehensive income (loss) (“AOCI”), offsetting the currency translation adjustment related to the underlying net investment that is also recorded in AOCI. All other changes in fair value are recorded in interest expense. +57 +Table of Contents +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) +December 29, 2018 +December 30, 2017 +Foreign exchange contracts: +Hedge contracts +$ +220.3 +$ +162.7 +Non-hedge contracts +4.8 +— +Interest rate swap +181.3 +446.9 +Cross currency swap +95.8 +106.4 +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) +December 29, 2018 +December 30, 2017 +Financial assets: +Foreign exchange contracts - hedge +$ +8.7 +$ +0.3 +Interest rate swap +1.6 +— +Financial liabilities: +Foreign exchange contracts - hedge +$ +— +$ +(5.0 +) +Interest rate swap +— +(0.3 +) +Cross currency swap +(8.2 +) +(13.8 +) +Hedge effectiveness on the foreign exchange contracts is evaluated by the hypothetical derivative method. Any hedge ineffectiveness is reported within the cost of goods sold line item in the consolidated statements of operations. Hedge ineffectiveness was not material to the Company’s consolidated financial statements for the year-to-date ended December 29, 2018 and December 30, 2017 . If, in the future, the foreign exchange contracts are determined to be ineffective hedges or terminated before their contractual termination dates, the Company would be required to reclassify into earnings all or a portion of the unrealized amounts related to the cash flow hedges that are currently included in AOCI within stockholders’ equity. +The differential paid or received on the interest rate swap arrangements is recognized as interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swaps and the variable rate borrowings, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the hedges’ inception, and continues to assess on an ongoing basis, whether the derivatives used in the hedging transaction are highly effective in offsetting changes in the cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of AOCI and will be recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value will be immediately recognized as a component of interest expense. Hedge ineffectiveness was not material to the Company’s consolidated financial statements for the year-to-date ended December 29, 2018 and December 30, 2017 . +Hedge effectiveness on the cross currency swap is assessed using the spot method. In accordance with ASC 815, the Company has formally documented the relationship between the cross currency swap and the Company’s investment in its euro-denominated subsidiary, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to its net investment on the balance sheet. The Company also assessed at the hedges’ inception, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in expected cash flows of the hedged item. The effective portion of unrealized gains (losses) is deferred as a component of AOCI and will be recognized in earnings at the time the hedged item affects earnings. Any ineffective portion of the change in fair value will be immediately recognized as a component of interest expense. The Company's cross currency swap has remained effective since inception through the year ended December 29, 2018 . +11. +STOCK-BASED COMPENSATION +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company recognized compensation expense of $ 31.2 million , $ 25.4 million and $ 22.8 million and related income tax benefits of $ 6.4 million , $ 8.6 million and $ 7.9 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2018 , 2017 and 2016 , respectively. The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. +As of December 29, 2018 , the Company had 8,154,675 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options +58 +Table of Contents +granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment or upon failure to achieve performance criteria in certain instances. These restrictions typically lapse over a three- to four-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement and upon a change in control of the Company. Awards issued to employees that meet the specified retirement age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued, shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $8.20 , $5.50 and $3.36 per share for fiscal years 2018 , 2017 and 2016 , respectively, with the following weighted-average assumptions. +Fiscal Year +2018 +2017 +2016 +Expected market price volatility (1) +29.6 +% +29.3 +% +27.2 +% +Risk-free interest rate (2) +2.5 +% +1.7 +% +1.0 +% +Dividend yield (3) +0.8 +% +1.0 +% +1.4 +% +Expected term (4) +4 years +4 years +4 years +(1) +Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant. +(2) +Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. +(3) +Represents the Company’s estimated cash dividend yield for the expected term. +(4) +Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior. +59 +Table of Contents +A summary of the stock option transactions is as follows: +Shares Under Option +Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at January 2, 2016 +6,372,394 +$ +20.54 +6.1 +$ +8.6 +Granted +2,445,573 +16.88 +Exercised +(562,610 +) +14.41 +Cancelled +(761,695 +) +23.03 +Outstanding at December 31, 2016 +7,493,662 +$ +19.55 +6.4 +$ +28.7 +Granted +93,274 +23.85 +Exercised +(1,267,269 +) +17.15 +Cancelled +(230,003 +) +21.37 +Outstanding at December 30, 2017 +6,089,664 +$ +20.05 +5.8 +$ +72.1 +Granted +28,171 +31.85 +Exercised +(1,359,387 +) +17.69 +Cancelled +(56,446 +) +17.12 +Outstanding at December 29, 2018 +4,702,002 +$ +20.83 +5.2 +$ +54.5 +Nonvested at December 29, 2018 +(581,194 +) +Exercisable at December 29, 2018 +4,120,808 +$ +21.30 +4.9 +$ +45.8 +The total pretax intrinsic value of stock options exercised during fiscal years 2018 , 2017 and 2016 was $21.2 million , $12.5 million and $4.0 million , respectively. As of December 29, 2018 , there was $ 0.4 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 0.8 years. As of December 30, 2017 and December 31, 2016 , there was $1.8 million and $4.8 million , respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.0 years and 1.4 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price of the Company's stock was above the strike price ("in-the-money"), as of that date. The total number of in-the-money options exercisable as of December 29, 2018 , based on the Company’s closing stock price of $ 32.41 per share, was 4,048,842 and the weighted-average exercise price was $ 21.09 per share. As of December 30, 2017 , 4,563,527 outstanding options were exercisable and in-the-money, with a weighted-average exercise price of $20.26 per share. +Restricted Awards and Performance Awards +A summary of the nonvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards +Weighted- +Average +Grant Date +Fair Value +Performance +Awards +Weighted- +Average +Grant Date +Fair Value +Nonvested at January 2, 2016 +1,726,639 +$ +24.57 +1,506,119 +$ +26.08 +Granted +1,050,758 +16.89 +1,008,228 +16.71 +Vested +(443,380 +) +22.10 +(316,454 +) +23.54 +Forfeited +(386,639 +) +23.27 +(467,007 +) +23.22 +Nonvested at December 31, 2016 +1,947,378 +$ +21.24 +1,730,886 +$ +21.86 +Granted +762,078 +23.06 +511,722 +25.14 +Vested +(445,939 +) +22.03 +(173,894 +) +27.01 +Forfeited +(238,445 +) +21.66 +(378,046 +) +25.04 +Nonvested at December 30, 2017 +2,025,072 +$ +21.70 +1,690,668 +$ +21.54 +Granted +609,276 +31.81 +384,657 +35.10 +Vested +(560,263 +) +22.93 +(229,023 +) +26.64 +Forfeited +(153,712 +) +23.81 +(215,284 +) +26.18 +Nonvested at December 29, 2018 +1,920,373 +$ +24.38 +1,631,018 +$ +23.42 +60 +Table of Contents +As of December 29, 2018 , there was $ 20.2 million of unrecognized compensation expense related to nonvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended December 29, 2018 was $ 17.4 million . As of December 30, 2017 , there was $18.3 million of unrecognized compensation expense related to nonvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.8 years. The total fair value of Restricted Awards vested during the year ended December 30, 2017 was $10.6 million . As of December 31, 2016 , there was $16.6 million of unrecognized compensation expense related to nonvested Restricted Awards, which was expected to be recognized over a weighted-average period of 2.1 years. The total fair value of Restricted Awards vested during the year ended December 31, 2016 was $7.7 million . +As of December 29, 2018 , there was $ 19.0 million of unrecognized compensation expense related to nonvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of Performance Awards vested during the year ended December 29, 2018 was $ 7.3 million . As of December 30, 2017 , there was $16.9 million of unrecognized compensation expense related to nonvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.9 years. The total fair value of Performance Awards vested during the year ended December 30, 2017 was $4.0 million . As of December 31, 2016 , there was $8.2 million of unrecognized compensation expense related to nonvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.8 years. The total fair value of Performance Awards vested during the year ended December 31, 2016 was $ 5.2 million . +12. +RETIREMENT PLANS +The Company has three non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The remaining two defined benefit plans are closed to new participants and no longer accrue future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company for a period of time that generally extends 15 to 18 years following retirement. The Company maintains life insurance policies with a cash surrender value of $ 64.4 million at December 29, 2018 and $ 60.7 million at December 30, 2017 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for Company contributions based on earnings. The Company recognized expense for its contributions to the defined contribution plans of $ 4.5 million , $ 4.2 million and $ 4.0 million in fiscal years 2018 , 2017 and 2016 , respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.1 million , $ 1.0 million and $ 1.1 million in fiscal years 2018 , 2017 and 2016 , respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 1.1 million at December 29, 2018 and $ 1.1 million at December 30, 2017 and was recognized as a deferred compensation liability on the consolidated balance sheets. +61 +Table of Contents +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2018 and 2017 : +Fiscal Year +(In millions) +2018 +2017 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ +443.4 +$ +417.5 +Service cost pertaining to benefits earned during the year +6.3 +7.2 +Interest cost on projected benefit obligations +16.5 +17.7 +Actuarial loss (gain) +(31.6 +) +30.5 +Benefits paid to plan participants +(19.2 +) +(27.2 +) +Curtailment +— +(2.3 +) +Settlement +(66.6 +) +— +Projected benefit obligations at end of the year +$ +348.8 +$ +443.4 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ +299.6 +$ +271.9 +Actual return (loss) on plan assets +(22.6 +) +41.0 +Company contributions - pension +60.7 +11.3 +Company contributions - SERP +2.5 +2.6 +Benefits paid to plan participants +(19.2 +) +(27.2 +) +Settlement +(66.6 +) +— +Fair value of pension assets at end of the year +$ +254.4 +$ +299.6 +Funded status +$ +(94.4 +) +$ +(143.8 +) +Amounts recognized in the consolidated balance sheets: +Non-current assets +$ +1.4 +$ +2.1 +Current liabilities +(3.8 +) +(3.7 +) +Non-current liabilities +(92.0 +) +(142.2 +) +Net amount recognized +$ +(94.4 +) +$ +(143.8 +) +Funded status of pension plans and SERP (supplemental): +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations +57.4 +54.0 +Net funded status of pension plans and SERP (supplemental) +$ +(37.0 +) +$ +(89.8 +) +Unrecognized net actuarial loss recognized in AOCI was $ 44.6 million and $ 42.6 million , and amounts net of tax were $ 36.2 million and $ 28.6 million , as of December 29, 2018 and December 30, 2017, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 319.1 million at December 29, 2018 and $ 422.0 million at December 30, 2017 . The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during 2019 is $ 2.6 million . +62 +Table of Contents +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) +2018 +2017 +2016 +Service cost pertaining to benefits earned during the year +$ +6.3 +$ +7.2 +$ +6.5 +Interest cost on projected benefit obligations +16.5 +17.7 +19.1 +Expected return on pension assets +(21.5 +) +(19.8 +) +(20.1 +) +Net amortization loss +3.3 +9.8 +5.0 +Settlement loss (gain) +7.2 +— +(0.1 +) +Net pension expense +$ +11.8 +$ +14.9 +$ +10.4 +Less: SERP expense +5.5 +5.5 +5.8 +Qualified defined benefit pension plans expense +$ +6.3 +$ +9.4 +$ +4.6 +During fiscal 2018 quarter, the Company completed a pension annuity purchase, which settled $ 66.6 million of projected benefit obligations. The Company recognized a settlement loss of $ 7.2 million due to the annuity purchase. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2018 +2017 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +4.46% +3.80% +Rate of compensation increase - pension +3.82% +3.92% +Rate of compensation increase - SERP +7.00% +7.00% +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +3.80% +4.35% +Expected long-term rate of return on plan assets +7.00% +7.25% +Rate of compensation increase - pension +3.92% +3.97% +Rate of compensation increase - SERP +7.00% +7.00% +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five -year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and service cost for the subsequent year. +63 +Table of Contents +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 29, 2018 were 57 % in equity securities, 38 % in fixed income securities and 5 % in real estate investments. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +December 29, 2018 +December 30, 2017 +(In millions) +Total +% of Total +Total +% of Total +Equity securities +$ +138.2 +1 +54.4 +% +$ +173.4 +1 +57.9 +% +Fixed income securities +98.0 +1 +38.5 +% +109.1 +1 +36.4 +% +Real estate investments +16.1 +1 +6.3 +% +15.8 +1 +5.3 +% +Other +2.1 +2 +0.8 +% +1.3 +2 +0.4 +% +Fair value of plan assets +$ +254.4 +100.0 +% +$ +299.6 +100.0 +% +1 +In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +2 +In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 15 for additional information. +The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2019 and to make $ 3.8 million in contributions to the SERP in fiscal 2019 . +Expected benefit payments for the fiscal years subsequent to December 29, 2018 are as follows: +(In millions) +2019 +2020 +2021 +2022 +2023 +2024-2028 +Expected benefit payments +$ +16.2 +$ +15.7 +$ +16.2 +$ +16.9 +$ +17.7 +$ +98.6 +13. +INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) +2018 +2017 +2016 +United States +$ +159.2 +$ +(78.2 +) +$ +54.7 +Foreign +68.2 +67.6 +55.8 +Earnings (loss) before income taxes +$ +227.4 +$ +(10.6 +) +$ +110.5 +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) +2018 +2017 +2016 +Current expense: +Federal +$ +6.7 +$ +48.1 +$ +16.0 +State +2.4 +1.9 +1.4 +Foreign +10.9 +14.0 +11.3 +Deferred expense (credit): +Federal +2.1 +(72.0 +) +(6.9 +) +State +3.3 +(0.2 +) +(0.3 +) +Foreign +1.7 +(1.7 +) +1.5 +Income tax provision +$ +27.1 +$ +(9.9 +) +$ +23.0 +64 +Table of Contents +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: +Fiscal Year +(In millions) +2018 +2017 +2016 +Income taxes at U.S. statutory rates of 21%, 35% and 35% +$ +47.7 +$ +(3.7 +) +$ +38.7 +State income taxes, net of federal income tax +2.8 +(4.2 +) +(6.1 +) +(Nontaxable earnings) non-deductible losses of foreign affiliates: +Cayman Islands +— +(3.5 +) +(0.4 +) +Other +(0.1 +) +(0.3 +) +0.2 +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong +(10.8 +) +(17.3 +) +(17.3 +) +Other +(3.1 +) +3.5 +3.3 +Adjustments for uncertain tax positions +(1.4 +) +0.4 +0.2 +Change in valuation allowance +3.3 +3.0 +2.0 +Change in state tax rates +1.9 +0.1 +(0.1 +) +Transition tax due to TCJA +(0.1 +) +58.1 +— +Remeasurement of U.S. deferred taxes due to TCJA +— +(52.5 +) +— +Global Intangible Low Tax Income tax +3.7 +— +— +Foreign Derived Intangible Income tax benefit +(6.8 +) +— +— +Deferred tax on future cash dividends +(0.9 +) +3.0 +— +Permanent adjustments and non-deductible expenses +(9.6 +) +(0.6 +) +1.9 +Other +0.5 +4.1 +0.6 +Income tax provision +$ +27.1 +$ +(9.9 +) +$ +23.0 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) +December 29, +2018 +December 30, +2017 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances +$ +4.9 +$ +5.9 +Deferred compensation accruals +6.9 +8.9 +Accrued pension expense +21.6 +33.9 +Stock-based compensation +16.9 +16.7 +Net operating loss and foreign tax credit carryforwards +19.2 +15.1 +Book over tax depreciation and amortization +0.8 +— +Tenant lease expenses +4.1 +3.2 +Environmental reserve +5.0 +7.9 +Other +5.8 +10.4 +Total gross deferred income tax assets +85.2 +102.0 +Less valuation allowance +(17.8 +) +(14.5 +) +Net deferred income tax assets +67.4 +87.5 +Deferred income tax liabilities: +Intangible assets +(157.3 +) +(155.3 +) +Tax over book depreciation and amortization +(8.3 +) +(6.3 +) +Other +(6.6 +) +(5.8 +) +Total deferred income tax liabilities +(172.2 +) +(167.4 +) +Net deferred income tax liabilities +$ +(104.8 +) +$ +(79.9 +) +The valuation allowance for deferred income tax assets as of December 29, 2018 and December 30, 2017 was $ 17.8 million and $ 14.5 million , respectively. The net increase in the total valuation allowance for fiscal years 2018 and 2017 was $ 3.3 million and $ 3.0 million , respectively. The valuation allowance for both years is primarily related to U.S. state and local net operating loss +65 +Table of Contents +carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation allowance comprises a decrease against the state deferred tax assets of $ 2.1 million and an increase related to state net operating loss carryforward of $ 2.8 million , and a net increase relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 2.6 million . +At December 29, 2018 , the Company had foreign net operating loss carryforwards of $ 36.1 million , which have expirations ranging from 2019 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. state net operating loss carryforwards of $ 140.7 million , which have expirations ranging from 2019 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 3.6 million , which are available for an unlimited carryforward period to offset future foreign taxes. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) +2018 +2017 +Beginning balance +$ +9.3 +$ +8.9 +Increases related to current year tax positions +0.8 +1.8 +Decreases related to prior year positions +(2.0 +) +(1.1 +) +Decrease due to lapse of statute +(0.2 +) +(0.3 +) +Ending balance +$ +7.9 +$ +9.3 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 7.1 million and $8.5 million as of December 29, 2018 and December 30, 2017 , respectively. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 2.4 million and $ 2.7 million as of December 29, 2018 and December 30, 2017 , respectively. +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014 . +On December 22, 2017, the TCJA was enacted, which significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and created a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. As a result, the Company recorded income tax expense of $ 5.6 million during the fourth quarter of 2017. This amount, which is included in the income tax expense (benefit) line item in the consolidated statements of operations, consists of two components: (i) a $ 58.1 million expense relating to the estimated one-time mandatory transition tax on previously deferred earnings of certain non-U.S. subsidiaries that are owned either wholly or partially by a U.S. subsidiary of the Company to be paid over eight years, and (ii) a $ 52.5 million benefit resulting from the remeasurement of the Company’s deferred tax assets and liabilities in the U.S. based on the new lower corporate income tax rate. +As a result of the TCJA, the Company now intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 0.6 million and $ 3.0 million for fiscal years 2018 and 2017 , respectively. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of foreign unremitted earnings of $ 249.3 million at December 29, 2018 . However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +In the fourth quarter of fiscal 2018, the Company completed the analysis and computations necessary to finalize the provisional amounts reported in fiscal 2017 prior to the expiration of the December 22, 2018 applicable measurement period. The Company adjusted the computation of transition tax and remeasurement of deferred taxes, previously reported in fiscal 2017, and reflected a $ 1.2 million adjustment in the fourth quarter of fiscal 2018 to finalize the accounting under SAB 118. +66 +Table of Contents +14. +ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) +AOCI represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +The change in accumulated other comprehensive income (loss) during fiscal years 2018 and 2017 is as follows: +(In millions) +Foreign +currency +translation +adjustments +Derivatives +Pension +adjustments +Total +Balance of AOCI as of December 31, 2016 +$ +(53.5 +) +$ +2.8 +$ +(30.4 +) +$ +(81.1 +) +Other comprehensive income (loss) before reclassifications (1) +20.8 +(16.0 +) +(4.5 +) +0.3 +Amounts reclassified from accumulated other comprehensive income (loss) +— +(0.4 +) +(2) +9.8 +(3) +9.4 +Income tax (expense) benefit +— +(0.3 +) +(3.5 +) +(3.8 +) +Net reclassifications +— +(0.7 +) +6.3 +5.6 +Net current-period other comprehensive income (loss) (1) +20.8 +(16.7 +) +1.8 +5.9 +Balance of AOCI as of December 30, 2017 +$ +(32.7 +) +$ +(13.9 +) +$ +(28.6 +) +$ +(75.2 +) +Other comprehensive income (loss) before reclassifications (1) +(20.3 +) +14.4 +(9.9 +) +(15.8 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +3.8 +(2) +10.5 +(3) +14.3 +Income tax (expense) benefit +— +(1.3 +) +(2.2 +) +(3.5 +) +Net reclassifications +— +2.5 +8.3 +10.8 +Net current-period other comprehensive income (loss) (1) +(20.3 +) +16.9 +(1.6 +) +(5.0 +) +Reclassifications to retained earnings (4) +— +(2.1 +) +(6.0 +) +(8.1 +) +Balance of AOCI as of December 29, 2018 +$ +(53.0 +) +$ +0.9 +$ +(36.2 +) +$ +(88.3 +) +(1) +Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) +Amounts related to foreign currency derivatives are included in cost of goods sold. Amounts related to interest rate swaps and the cross currency swap are included in interest expense. +(3) +Amounts reclassified are included in the computation of net pension expense, and includes $ 7.2 million in fiscal 2018 related to a settlement loss. See Note 12. +(4) +Amounts reclassified to retained earnings upon adoption of ASU 2017-12 and ASU 2018-02. +15. +FAIR VALUE MEASUREMENTS +The Company follows ASC 820, which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: +Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: +Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: +Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +67 +Table of Contents +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) +December 29, 2018 +December 30, 2017 +Financial assets: +Derivatives +$ +10.3 +$ +0.3 +Financial liabilities: +Derivatives +$ +(8.2 +) +$ +(19.1 +) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. The interest rate swaps are valued based on the current forward rates of the future cash flows. The fair value of the cross currency swap is determined using the current forward rates and changes in the spot rate. +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt, excluding capital leases, are as follows: +(In millions) +December 29, 2018 +December 30, 2017 +Carrying value +$ +570.1 +$ +782.1 +Fair value +566.8 +802.5 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +16. +LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets, and Scotchgard™. +The United States Centers for Disease Control and Prevention has concluded that studies of the health effects of PFOA and PFOS are “inconsistent and inconclusive,” but in May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion ("ppt") combined for PFOA and PFOS. Lifetime health advisories, while not enforceable, serve as guidance and are benchmarks for determining if concentrations of chemicals in tap water from public utilities are safe for public consumption. On January 9, 2018, the Michigan Department of Environmental Quality (“MDEQ”) announced it developed a drinking water criterion of 70 ppt combined for PFOA and PFOS, which sets an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. This combined criterion took effect January 10, 2018. +The Company has been served with two regulatory actions including a civil action filed by the MDEQ under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”), and a Unilateral Administrative Order issued by the EPA under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) Section 106. The Company has also been served with individual lawsuits and three putative class action lawsuits. +68 +Table of Contents +Regulatory and Civil Actions of EPA and MDEQ +On January 10, 2018, the MDEQ filed a civil action against the Company under the federal RCRA alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has contributed to the disposal of solid wastes that was done in a way that resulted in releases of PFAS at levels that resulted in detections exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "MDEQ Action"). +The MDEQ Action seeks to require the Company to investigate the location and extent of PFAS in the environment, develop and implement plans for the continued sampling and analysis of impacts to drinking water wells from PFAS released or disposed of by the Company, and provide alternative drinking water supplies to homes impacted by PFAS for which the Company is allegedly responsible. The MDEQ Action further seeks to require the Company to connect users of drinking water wells to municipal drinking water supplies to address allegedly unacceptable risks posed by a release or threat of release of PFAS attributable to the Company. On December 19, 2018, the Company filed a third-party complaint against the 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the MDEQ Action. +The Company is working with the MDEQ to analyze the Tannery property, House Street site and other relevant disposal sites, test nearby residential drinking water wells and coordinate communications to impacted homeowners. The Company’s current remediation efforts have included, among other items, providing alternate drinking water to impacted homes, including bottled water and water filtration systems, sampling residential wells, installing and sampling monitoring wells and collecting and analyzing soil and sediment samples. The Company continues to collect and analyze this data on a continuing basis with the MDEQ and EPA. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a). The effective date of the Order was February 1, 2018. The Order pertains to the Company's Tannery and House Street sites and directs the Company to conduct specified removal actions to abate actual or threatened releases of hazardous substances at or from the sites. On February 1, 2018, the Company filed its Notice of Intent to Comply with the EPA Order, which outlined the Company’s position on certain aspects of the proposed Order. In its response, the Company has agreed to comply with the terms of the Order, but has identified inaccuracies and shortcomings in the Order that challenge the legal basis for the Order. Pursuant to the Order, in May and June of 2018, the Company submitted to the EPA its final removal work plans for performing the removal actions at the Tannery and House Street sites. The Company has also provided the EPA with other submittals required by the Order, including a Sampling and Analysis Plan, Health and Safety Plan, Quality Assurance Project Plan, monthly progress reports and other technical reports. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual and Class Action Litigation +Individual lawsuits and three putative class action lawsuits have been filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. In addition, the current owner of a former landfill and gravel mining operation has sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (collectively with the individual lawsuits and putative class actions, the “Litigation Matters”). Assessing potential liability with respect to the Litigation Matters at this time, however, is difficult. The Litigation Matters are in various stages of discovery and preliminary motions. In addition, there is minimal direct and relevant precedent for these types of claims related to PFAS, and the science regarding the human health effects of PFAS exposure in the environment remains inconclusive and inconsistent, thereby creating additional uncertainties. Due to these factors, combined with the complexities and uncertainties of litigation, the Company is unable to conclude that adverse verdicts resulting from the Litigation Matters are probable, and therefore no amounts are currently reserved for these claims. The Company intends to continue to vigorously defend itself against these claims. +In addition, in December 2018 the Company filed a lawsuit against certain of its historic liability insurers, seeking their participation in Wolverine's defense and remediation efforts. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment and intellectual property. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +69 +Table of Contents +Environmental Liabilities +The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual site. The Company incurred $ 4.8 million of environmental remediation costs during fiscal 2018 and $ 31.1 million during fiscal year 2017, which net of payments, resulted in a reserve of $ 22.6 million as of December 29, 2018 . The reserve comprises $ 11.5 million that is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 11.1 million recorded in other liabilities and is expected to be paid over the course of up to 30 years. The Company records liabilities for remediation costs on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies or the Company’s commitment to a plan of action. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company expects that it will pay the amounts accrued over the periods of remediation for the applicable sites, currently ranging up to 30 years. +The Company's remediation activity at the Tannery property, House Street site and other relevant disposal sites is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to December 29, 2018 are as follows: +(In millions) +2019 +2020 +2021 +2022 +2023 +Thereafter +Minimum royalties +$ +1.5 +$ +1.5 +$ +1.7 +$ +1.8 +$ +— +$ +— +Minimum advertising +3.1 +3.2 +3.3 +3.4 +3.5 +3.6 +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.2 million , $ 2.3 million and $ 2.0 million for fiscal years 2018 , 2017 , and 2016 , respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 3.3 million , $ 3.2 million and $ 3.2 million for fiscal years 2018 , 2017 , and 2016 , respectively. +17. +BUSINESS SEGMENTS +The Company’s portfolio of brands is organized into the following three operating segments, which the Company has determined to be reportable operating segments. During the first quarter of fiscal 2018, the Kids footwear business was realigned into the Wolverine Boston Group and the multi-brand consumer-direct component is now reported within the other category. All prior period disclosures have been restated to reflect these new reportable operating segments. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel, Chaco ® footwear and Sebago ® footwear and apparel; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® ; and +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded +70 +Table of Contents +footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-branded consumer-direct retail stores, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs and environmental and other related costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. +On February 1, 2019, the Company implemented certain organizational changes. The Company is evaluating the impacts of these changes to its reportable operating segments, which will be reflected beginning with the first quarter of fiscal 2019. +Company management uses various financial measures to evaluate the performance of the reportable operating segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) +2018 +2017 +2016 +Revenue: +Wolverine Outdoor & Lifestyle Group +$ +951.9 +$ +939.9 +$ +883.1 +Wolverine Boston Group +895.5 +988.8 +1,167.5 +Wolverine Heritage Group +320.3 +327.9 +347.0 +Other +71.5 +93.4 +97.0 +Total +$ +2,239.2 +$ +2,350.0 +$ +2,494.6 +Operating profit (loss): +Wolverine Outdoor & Lifestyle Group +$ +196.8 +$ +190.4 +$ +163.8 +Wolverine Boston Group +157.5 +153.6 +131.7 +Wolverine Heritage Group +60.8 +53.3 +50.8 +Other +3.1 +5.2 +3.3 +Corporate +(166.3 +) +(370.9 +) +(185.8 +) +Total +$ +251.9 +$ +31.6 +$ +163.8 +Depreciation and amortization expense: +Wolverine Outdoor & Lifestyle Group +$ +2.3 +$ +2.4 +$ +3.0 +Wolverine Boston Group +3.3 +3.7 +6.3 +Wolverine Heritage Group +0.4 +0.5 +0.5 +Other +3.1 +3.5 +3.8 +Corporate +22.4 +27.1 +29.9 +Total +$ +31.5 +$ +37.2 +$ +43.5 +Capital expenditures: +Wolverine Outdoor & Lifestyle Group +$ +3.0 +$ +0.5 +$ +3.3 +Wolverine Boston Group +1.2 +1.6 +6.1 +Wolverine Heritage Group +0.1 +— +0.5 +Other +1.8 +1.8 +2.6 +Corporate +15.6 +28.5 +42.8 +Total +$ +21.7 +$ +32.4 +$ +55.3 +71 +Table of Contents +(In millions) +December 29, +2018 +December 30, +2017 +Total assets: +Wolverine Outdoor & Lifestyle Group +$ +450.9 +$ +420.4 +Wolverine Boston Group +1,282.2 +1,244.9 +Wolverine Heritage Group +175.9 +136.7 +Other +50.0 +42.2 +Corporate +224.1 +554.8 +Total +$ +2,183.1 +$ +2,399.0 +Goodwill: +Wolverine Outdoor & Lifestyle Group +$ +127.3 +$ +128.8 +Wolverine Boston Group +280.6 +284.5 +Wolverine Heritage Group +16.5 +16.5 +Total +$ +424.4 +$ +429.8 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) +2018 +2017 +2016 +United States +$ +1,505.2 +$ +1,608.7 +$ +1,791.5 +Foreign: +Europe, Middle East and Africa +325.7 +322.4 +323.9 +Canada +116.7 +121.2 +120.5 +Other +291.6 +297.7 +258.7 +Total from foreign territories +734.0 +741.3 +703.1 +Total revenue +$ +2,239.2 +$ +2,350.0 +$ +2,494.6 +The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment, is as follows: +(In millions) +December 29, +2018 +December 30, +2017 +December 31, +2016 +United States +$ +117.1 +$ +122.4 +$ +131.4 +Foreign countries +13.8 +14.3 +14.7 +Total +$ +130.9 +$ +136.7 +$ +146.1 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2018 , the Company sourced 100% of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +18. +RESTRUCTURING ACTIVITIES +2017 Plan +Beginning in the second quarter of fiscal 2017, the Company implemented certain organizational changes and initiated the sale of certain assets and a change to the distribution model for certain brands (the “2017 Plan”). See Note 19 for additional information on the divestitures and distribution model changes. The Company completed the 2017 Plan during the fourth quarter of fiscal 2017. The Company expects annual pretax benefits of approximately $ 11.0 million as a result of the 2017 Plan. Costs incurred related to the 2017 Plan have been recorded within the Corporate category. The cumulative costs incurred are $ 11.3 million , with $ 1.5 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 9.8 million recorded in the restructuring and other related costs line item as a component of operating expenses. +72 +Table of Contents +The following is a summary of the activity during fiscal 2018 and 2017, with respect to a reserve established by the Company in connection with the 2017 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at December 31, 2016 +$ +— +$ +— +$ +— +$ +— +Restructuring costs +7.6 +1.6 +2.1 +11.3 +Amounts paid +(4.3 +) +— +(0.3 +) +(4.6 +) +Charges against assets +— +(1.6 +) +(1.8 +) +(3.4 +) +Balance at December 30, 2017 +$ +3.3 +$ +— +$ +— +$ +3.3 +Amounts paid +(3.3 +) +— +— +(3.3 +) +Balance at December 29, 2018 +$ +— +$ +— +$ +— +$ +— +2016 Plan +On October 6, 2016, the Board of Directors of the Company approved a realignment of the Company’s consumer-direct operations (the “2016 Plan”), which resulted in the closure of certain retail stores. The Company closed 266 retail stores in connection with the 2016 Plan, which was completed during the fourth quarter of fiscal 2017. The Company expects annual pretax benefits of approximately $ 20.0 million as a result of the 2016 Plan. Costs incurred related to the 2016 Plan have been recorded within the Corporate category. The cumulative costs incurred are $ 75.1 million , with $ 10.2 million recorded in the restructuring costs line item as a component of cost of goods sold, and $ 64.9 million recorded in the restructuring and other related costs line item as a component of operating expenses. +The following is a summary of the activity during fiscal 2018, 2017 and 2016, with respect to a reserve established by the Company in connection with the 2016 Plan, by category of costs. +(In millions) +Severance and employee related +Impairment of property and equipment +Costs associated with exit or disposal activities +Total +Balance at January 2, 2016 +$ +— +$ +— +$ +— +$ +— +Restructuring costs +0.8 +— +5.0 +5.8 +Amounts paid +— +— +(1.1 +) +(1.1 +) +Charges against assets +— +— +(2.7 +) +(2.7 +) +Balance at December 31, 2016 +$ +0.8 +$ +— +$ +1.2 +$ +2.0 +Restructuring costs +3.5 +9.4 +56.4 +69.3 +Amounts paid +(4.0 +) +— +(52.3 +) +(56.3 +) +Charges against assets +— +(9.4 +) +(3.9 +) +(13.3 +) +Balance at December 30, 2017 +$ +0.3 +$ +— +$ +1.4 +$ +1.7 +Amounts paid +(0.3 +) +— +(1.1 +) +(1.4 +) +Balance at December 29, 2018 +$ +— +$ +— +$ +0.3 +$ +0.3 +Other Restructuring Activities +During fiscal 2017 and fiscal 2016, the Company recorded restructuring costs of $ 2.0 million and $ 13.9 million , respectively, in connection with certain organizational changes. The costs associated with these restructuring activities were recorded within the Company’s Corporate category in the restructuring and other related costs line item as a component of operating expenses. +During the fourth quarter of fiscal 2017, the Company recorded impairment costs of $ 68.6 million , related to indefinite-lived intangibles of its Sperry ® brand. The Company recorded these costs within its Corporate category in the impairment of intangible assets line item as a component of operating expenses in the consolidated statements of operations. +During the fourth quarter of fiscal 2016, the Company recorded impairment costs of $ 7.1 million related to indefinite-lived intangibles of its Stride Rite ® brand. The Company recorded these costs within its Corporate category in the impairment of intangible assets line item as a component of operating expenses in the consolidated statements of operations. +The Company recorded impairment charges of $ 12.2 million during fiscal 2016 related to certain retail store assets where the estimated future cash flows did not support the net book value of the store assets. These costs were recorded within its corporate +73 +Table of Contents +category in the restructuring and other related costs line item as a component of operating expenses in the consolidated statements of operations. +19. +DIVESTITURES +In the third quarter of fiscal 2017, the Company entered into a global, multi-year licensing agreement of the Stride Rite ® brand. As part of this agreement, the Company agreed to sell inventory and certain other assets and liabilities related to the Stride Rite ® brand and provide certain transition services to the licensee. The Company received cash of $ 16.9 million for the sale of these assets and liabilities and recognized a gain of $ 0.2 million , which is included in the selling, general and administrative expenses line item on the consolidated statement of operations and comprehensive income. The assets and liabilities sold, which were included in the Wolverine Multi-Brand Group, are as follows: +(In millions) +Book Value +Inventory +$ +17.1 +Prepaid expenses and other current assets +1.4 +Other accrued liabilities +(1.8 +) +Total assets and liabilities sold +$ +16.7 +In the third quarter of fiscal 2017, the Company sold certain intangible and other assets related to the Sebago ® brand. As part of this agreement, the buyer acquired the intellectual property rights to design, manufacture and market all products under the Sebago ® brand. The Company received cash of $ 14.3 million and recognized a gain on sale of $ 8.4 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations and comprehensive income. The assets sold, which were included in the Wolverine Outdoor & Lifestyle Group, are as follows: +(In millions) +Book Value +Indefinite-lived intangibles +5.4 +Amortizable intangibles +0.2 +Total assets sold +$ +5.6 +In the third quarter of fiscal 2017, the Company sold its Department of Defense contract business, which comprised an owned manufacturing facility, the transfer of employees and certain associated assets. The goodwill allocated to the sale of the business was nominal. The Company received cash of $ 7.8 million and recognized a loss on sale of $ 1.6 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations and comprehensive income. The assets sold, which were included in the Wolverine Heritage Group and Other segment, are as follows: +(In millions) +Book Value +Inventory +$ +5.6 +Prepaid expenses and other current assets +0.5 +Property, plant and equipment +3.0 +Total assets sold +$ +9.1 +74 +Table of Contents +20. +QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) +The aggregate quarterly earnings per share amounts disclosed in the table below may not equal the annual per share amounts due to rounding and the fact that results for each quarter are calculated independently of the full fiscal year. The Company’s unaudited quarterly results of operations are as follows: +Fiscal 2018 +(In millions, except per share data) +Quarter Ended March 31, 2018 +Quarter Ended June 30, 2018 +Quarter Ended September 29, 2018 +Quarter Ended December 29, 2018 +Revenue +$ +534.1 +$ +566.9 +$ +558.6 +$ +579.6 +Gross profit +227.9 +234.2 +232.1 +227.1 +Net earnings attributable to Wolverine World Wide, Inc. +46.7 +55.3 +58.8 +39.3 +Net earnings per share: +Basic +$ +0.49 +$ +0.58 +$ +0.62 +$ +0.39 +Diluted +0.48 +0.57 +0.60 +0.39 +Fiscal 2017 +(In millions, except per share data) +Quarter Ended +April 1, 2017 +Quarter Ended +July 1, 2017 +Quarter Ended September 30, 2017 +Quarter Ended December 30, 2017 +Revenue +$ +591.3 +$ +598.8 +$ +581.3 +$ +578.6 +Gross profit +234.7 +226.9 +230.7 +222.1 +Net earnings (loss) attributable to Wolverine World Wide, Inc. +16.7 +20.7 +23.2 +(60.3 +) +Net earnings (loss) per share: +Basic +$ +0.17 +$ +0.21 +$ +0.24 +$ +(0.65 +) +Diluted +0.17 +0.21 +0.24 +(0.65 +) +75 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of December 29, 2018 and December 30, 2017, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 29, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2018 and December 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2018, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2019 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 26, 2019 +76 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries internal control over financial reporting as of December 29, 2018, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 29, 2018, based on the COSO criteria . +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 29, 2018 and December 30, 2017, the related consolidated statements of operations, comprehensive income , stockholders' equity and cash flows for each of the three years in the period ended December 29, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 26, 2019 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 26, 2019 +77 +Table of Contents +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 29, 2018 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 29, 2018 . +The effectiveness of the Company’s internal control over financial reporting as of December 29, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 29, 2018 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. +Other Information +None. +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine Worldwide to be held on May 2, 2019 . The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +Item 11. +Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +78 +Table of Contents +Item 14. +Principal Accounting Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +PART IV +Item 15. +Exhibits, Financial Statement Schedules +(a) +The following documents are filed as part of this report: +(1) +Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• +Consolidated Statements of Operations for the Fiscal Years Ended December 29, 2018 , December 30, 2017 and December 31, 2016 . +• +Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 29, 2018 , December 30, 2017 and December 31, 2016 . +• +Consolidated Balance Sheets as of December 29, 2018 and December 30, 2017 . +• +Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 2018 , December 30, 2017 and December 31, 2016 . +• +Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 29, 2018 , December 30, 2017 and December 31, 2016 . +• +Notes to the Consolidated Financial Statements. +• +Reports of Independent Registered Public Accounting Firm. +(2) +Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• +Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) +Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Exhibit Number +Document +3.1 +Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on February 19, 2015. +4.1 +Senior Notes Indenture, dated August 30, 2016, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +4.2 +Form of 5.000% Senior Note due 2026. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +10.1 +Amended and Restated Stock Incentive Plan of 1999.* Incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009 . +10.2 +Amended and Restated Stock Incentive Plan of 2001.* Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.3 +Amended and Restated Stock Incentive Plan of 2003.* Incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +79 +Table of Contents +Exhibit Number +Document +10.4 +Amended and Restated Stock Incentive Plan of 2005.* Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.5 +Amended and Restated Directors’ Stock Option Plan.* Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.6 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.7 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.8 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.9 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.9. +10.10 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.10. +10.11 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.12 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.13 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.14 +Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 16, 2012. +10.15 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.16 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.17 +2016 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.18 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.19 +Form of Performance Share Award Agreement (2015 - 2017 performance period).* Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.20 +Form of Performance Share Award Agreement (2016 - 2018 performance period).* Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.21 +2017 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +10.22 +Form of Performance Stock Unit Award Agreement (2017 - 2019 performance period).* Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +10.23 +Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.24 +Form of Performance Restricted Stock Unit Agreement (2018 - 2020 performance period).* Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.25 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.26 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +80 +Table of Contents +Exhibit Number +Document +10.27 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.27. +10.28 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.29 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.30 +Wolverine World Wide, Inc. Deferred Compensation Plan, Amended and Restated.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.31 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.32 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.33 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016, as amended and restated.* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 27, 2018. +10.34 +Sixth Amendment to the Wolverine Employees' Pension Plan.* +10.35 +Limited Guarantee, dated as of May 1, 2012, entered into by Wolverine World Wide, Inc. in favor of Collective Brands, Inc. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.36 +Purchase Agreement, dated as of May 1, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.37 +Interim Agreement, dated as of May 1, 2012, by and among Wolverine World Wide, Inc., WBG-PSS Holdings LLC, WBG-PSS Merger Sub Inc., Golden Gate Capital Opportunity Fund, L.P. and Blum Strategic Partners IV, L.P. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.38 +Separation Agreement, dated as of May 1, 2012, by and between Wolverine World Wide, Inc. and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 4, 2012. +10.39 +Amendment No. 1 to Separation Agreement, dated as of October 9, 2012, by and between the Company and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.40 +Amendment No. 1 to Purchase Agreement, dated as of October 9, 2012, by and between Open Water Ventures, LLC and WBG-PSS Holdings LLC. Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended September 8, 2012. +10.41 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.42 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.43 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +81 +Table of Contents +Exhibit Number +Document +10.44 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.45 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.46 +Receivables Purchase Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.47 +Amendment to the Receivables Purchase Agreement, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser, dated January 5, 2018. Incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.48 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.49 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +10.50 +2018 Replacement Facility Amendment, dated as of December 6, 2018 among the Company, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, Wells Fargo Bank, National Association, Bank of America, N.A. and HSBC Bank USA, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2018. +21 +Subsidiaries of Registrant. +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101.INS +XBRL Instance Document +101.SCH +XBRL Taxonomy Extension Schema Document +101.CAL +XBRL Taxonomy Extension Calculation Linkbase Document +101.DEF +XBRL Taxonomy Extension Definition Linkbase Document +101.LAB +XBRL Taxonomy Extension Label Linkbase Document +101.PRE +XBRL Taxonomy Extension Presentation Linkbase Document +* +Management contract or compensatory plan or arrangement. +Item 16. +Form 10-K Summary +None. +82 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: +February 26, 2019 +By: +/s/ Blake W. Krueger +Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +February 26, 2019 +Blake W. Krueger +/s/ Michael D. Stornant +Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) +February 26, 2019 +Michael D. Stornant +/s/ Jeffrey M. Boromisa +Director +February 26, 2019 +Jeffrey M. Boromisa +/s/ Gina R. Boswell +Director +February 26, 2019 +Gina R. Boswell +/s/ Roxane Divol +Director +February 26, 2019 +Roxane Divol +/s/ William K. Gerber +Director +February 26, 2019 +William K. Gerber +/s/ Joseph R. Gromek +Director +February 26, 2019 +Joseph R. Gromek +/s/ David T. Kollat +Director +February 26, 2019 +David T. Kollat +/s/ Brenda J. Lauderback +Director +February 26, 2019 +Brenda J. Lauderback +/s/ Nicholas T. Long +Director +February 26, 2019 +Nicholas T. Long +/s/ Michael A. Volkema +Director +February 26, 2019 +Michael A. Volkema +83 +Table of Contents +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +Column A +Column B +Column C +Column D +Column E +Additions +(In millions) +Balance at +Beginning of +Period +(1) +Charged to +Costs and +Expenses +(2) +Charged to +Other +Accounts +(Describe) +Deductions +(Describe) +Balance at +End of +Period +Fiscal Year Ended December 29, 2018 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +14.2 +$ +13.0 +— +$ +17.7 +(A) +$ +9.5 +Allowance for sales returns +12.6 +53.8 +— +52.8 +(B) +13.6 +Allowance for cash discounts +4.7 +7.7 +— +8.9 +(C) +3.5 +Inventory valuation allowances +11.5 +6.1 +— +9.3 +(D) +8.3 +Total +$ +43.0 +$ +80.6 +— +$ +88.7 +$ +34.9 +Fiscal Year Ended December 30, 2017 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +17.2 +$ +18.1 +— +$ +21.1 +(A) +$ +14.2 +Allowance for sales returns +16.3 +52.6 +— +56.3 +(B) +12.6 +Allowance for cash discounts +5.9 +17.9 +— +19.1 +(C) +4.7 +Inventory valuation allowances +18.0 +10.6 +— +17.1 +(D) +11.5 +Total +$ +57.4 +$ +99.2 +— +$ +113.6 +$ +43.0 +Fiscal Year Ended December 31, 2016 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +21.8 +$ +23.6 +— +$ +28.2 +(A) +$ +17.2 +Allowance for sales returns +16.3 +64.4 +— +64.4 +(B) +16.3 +Allowance for cash discounts +6.3 +21.0 +— +21.4 +(C) +5.9 +Inventory valuation allowances +17.3 +15.9 +— +15.2 +(D) +18.0 +Total +$ +61.7 +$ +124.9 +— +$ +129.2 +$ +57.4 +(A) +Accounts charged off, net of recoveries. +(B) +Actual customer returns. +(C) +Discounts given to customers. +(D) +Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2018/0000110471-19-000009/filing_metadata.csv b/raw/filings/0000110471/2018/0000110471-19-000009/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..7dd298ff2487c8423e469a4bf481c557c4baf797 --- /dev/null +++ b/raw/filings/0000110471/2018/0000110471-19-000009/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2019-02-26,2018-12-29,2019-02-26T21:41:07.000Z,0000110471-19-000009,wolverineform10-k2018.htm,FORM 10-K,13819273,1,0,https://www.sec.gov/Archives/edgar/data/110471/000011047119000009/wolverineform10-k2018.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047119000009/,2018,2018,1 diff --git a/raw/filings/0000110471/2018/0000110471-19-000009/item1.txt b/raw/filings/0000110471/2018/0000110471-19-000009/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..7db8e55a3bc13bfd3ea9e041be9d7f70d00b65eb --- /dev/null +++ b/raw/filings/0000110471/2018/0000110471-19-000009/item1.txt @@ -0,0 +1,90 @@ +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 200 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HyTest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following three operating segments, which the Company has determined to be reportable operating segments. During the first quarter of 2018, the Kids footwear business was realigned into the Wolverine Boston Group and the multi-brand consumer-direct component is now reported within the other category. All prior period disclosures have been restated to reflect these new reportable operating segments. +• +Wolverine Outdoor & Lifestyle Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Hush Puppies ® footwear and apparel and Chaco ® footwear; +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® ; and +• +Wolverine Heritage Group , consisting of Wolverine ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and HyTest ® safety footwear. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s multi-branded consumer-direct retail stores, leather marketing operations and sourcing operations that include third-party commission revenues. The Corporate category consists of unallocated corporate expenses, including restructuring and other related costs, impairment of intangible assets, organizational transformation costs and environmental and other related costs. The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. The Company’s Global Operations Group is responsible for sourcing, distribution, logistics and customer support. +For financial information regarding the Company, see the consolidated financial statements and the accompanying notes, which are included in Item 8 of this Annual Report on Form 10-K. +5 +Table of Contents +The Company's operating segments and related brands are described in more detail below. +1. +Wolverine Outdoor & Lifestyle Group +Merrell ® : Merrell ® products (footwear/apparel/accessories) are created to empower amazing outdoor lives. Known for quality, durability, versatility and comfort, Merrell ® is focused on delivering gear with compelling technologies, performance features and inspired styling for use both on the trail and around town. Merrell ® footwear offers an assortment of products in strategic categories such as technical hike, trail, run, outdoor fitness, lifestyle and work for both men and women. Merrell ® footwear is sold in outdoor specialty retailers, sporting goods chains, department stores, internet and catalog retailers as well as Merrell ® stores and an eCommerce site. Merrell ® apparel and accessories extend to an active outdoor lifestyle with a versatile line of apparel built for both performance and lifestyle. Merrell ® apparel features stylized lifestyle silhouettes built with the technical, high performance, weather fighting materials that consumers expect from a premium outdoor brand. Merrell ® also markets accessories including technical duffels and backpacks. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion products - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire our consumers to live life on the bright side. We believe that optimism is contagious and that by encouraging positivity we can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Chaco ® : Chaco’s whitewater heritage and 30-year history of outfitting rafting guides has helped cement its place in the high-performance footwear space. Every product Chaco ® makes exists to connect life-loving explorers to the wonders of the world through all-terrain versatility, unmatched durability, and signature LUVSEAT™ footbed arch support. Consumers can demonstrate their own creativity and express themselves through the virtually limitless sandal customization options available through the MyChaco design program. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers. as well as through an eCommerce site and other leading internet retailers. +2. +Wolverine Boston Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. Sperry ® also offers sport-specific and athlete-tested performance footwear solutions for sailors, boaters, anglers and multi-water sports enthusiasts. The Advance Water Technologies ™ product collection featuring ASV™ (Anti-Shock and Vibration) , Grip X3 Technology ® and SON-R Technology ® has allowed Sperry ® to reinforce its position as an innovation leader in these categories. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Sperry ® retail stores and an eCommerce site. +Saucony ® : Saucony ® is a leading performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the biomechanical needs of runners while maximizing comfort and protection, bringing to market innovations such as: EVERUN ® , a cushioning technology system; PowerGrid™ and PWRGRID+ ™ midsole technologies; Sauc-Fit ® , ComfortLite Sock Liner™, HydraMAX™ and ISO-Fit ™ upper technologies; and iBR+™ and XT-900™ outsole material innovations. Saucony ® offers five categories of footwear products – technical, race, trail, Life on the Run and lifestyle "Originals". Saucony ® also offers the Total Run System ™, a complete line of performance running apparel. Through the Find Your Strong ™ brand platform, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are +6 +Table of Contents +distributed primarily through leading run specialty, sporting goods retailers, as well as Saucony ® stores and an eCommerce site. +Keds ® : Keds ® is an authentic casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +Kids Footwear: The Kids footwear business includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® . With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® and Hush Puppies ® are distributed primarily through premium and better lifestyle retailers, outdoor and sporting good retailers, as well as through an eCommerce site and by a license partner. +3. +Wolverine Heritage Group +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in three categories: (i) trade work; (ii) outdoor recreation; and (iii) lifestyle and heritage. The development of DuraShocks ® and EPX Anti-Fatigue ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets skilled trade workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® outdoor recreation product lines incorporate DuraShocks ® and other technologies and comfort features into products designed for outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers looking for rugged and well-crafted casual boots and shoes. The brand also markets a line of work and rugged casual Wolverine ® brand apparel and socks, and licenses the Wolverine ® brand for use on eyewear, gloves and base layers. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HyTest ® Safety Footwear: The HyTest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HyTest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company operates a performance leather business and a multi-brand consumer-direct business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages +7 +Table of Contents +over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Multi-brand Consumer-Direct - The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfolio and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products to the retail customer and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company also operates brick and mortar retail stores and eCommerce sites. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2018 , 2017 or 2016 . +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in certain countries in South America and Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +8 +Table of Contents +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , HyTest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license has a term through December 31, 2024 and the Harley-Davidson ® license has a term through December 31, 2022. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 17, 2019, the Company had an order backlog of approximately $971 million, compared to an order backlog of approximately $913 million at February 18, 2018. Substantially all of the backlog relates to orders for products expected to ship in fiscal 2019 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing and +9 +Table of Contents +ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 16 to the consolidated financial statements. +Employees +As of December 29, 2018 , the Company had approximately 3,700 domestic and foreign production, office and sales employees. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Conduct & Compliance, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter, and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2018/0000110471-19-000009/item13.txt b/raw/filings/0000110471/2018/0000110471-19-000009/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..92d17cf27f8792f1e39df63eb94d432f87517b96 --- /dev/null +++ b/raw/filings/0000110471/2018/0000110471-19-000009/item13.txt @@ -0,0 +1,5 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +78 +Table of Contents \ No newline at end of file diff --git a/raw/filings/0000110471/2018/0000110471-19-000009/item9a.txt b/raw/filings/0000110471/2018/0000110471-19-000009/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..6c616ef1996024d890b2b335d0dc078c226e0363 --- /dev/null +++ b/raw/filings/0000110471/2018/0000110471-19-000009/item9a.txt @@ -0,0 +1,9 @@ +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 29, 2018 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 29, 2018 . +The effectiveness of the Company’s internal control over financial reporting as of December 29, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 29, 2018 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2018/0000110471-19-000009/rp_note.txt b/raw/filings/0000110471/2018/0000110471-19-000009/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000110471/2018/0000110471-19-000009/rpt_disclosure.txt b/raw/filings/0000110471/2018/0000110471-19-000009/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..4093da2064a6be98495f5669f8227459ff4e03a6 --- /dev/null +++ b/raw/filings/0000110471/2018/0000110471-19-000009/rpt_disclosure.txt @@ -0,0 +1,49 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since December 30, 2018, the Company has not engaged in any "related person" transactions with its directors, executive officers or +holders of 5% or more of Company voting securities, affiliates or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. They require the Governance +Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must +review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +any employment compensation paid to an executive officer of the Company if the Compensation Committee approved or recommended to the Board of Directors for approval of such compensation; +(2) +any compensation paid to a director for service as a director of the Company; +(3) +any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another entity, or +both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%; +(4) +any transaction in which the Related Person's interest arises solely from the ownership of the Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend); or +(5) +any transaction with another publicly traded company where the Related Person's interest arises solely from the ownership of more than 5% of the Company's common stock and the ownership of a non-controlling interest in the other publicly traded +company. +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and Proxy Statement, an executive officer, director or, to the extent information regarding such nominee is being +presented in a proxy or information statement relating to the election of that nominee as a director, nominee for election as a director; +(b) +beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +immediate family member* of any of the foregoing. +* Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers and +fathers-in-law, sons-and daughters-in-law, and brothers- and sisters-in-law, and anyone residing in such person's home (other than a tenant or employee). +The +Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar +circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested +Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. +2020 +PROXY +STATEMENT +72 +Table of Contents +Additional Information \ No newline at end of file diff --git a/raw/filings/0000110471/2019/0000110471-20-000008/filing.txt b/raw/filings/0000110471/2019/0000110471-20-000008/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..99f10e647f650f3991634f3dd04a8cf056866675 --- /dev/null +++ b/raw/filings/0000110471/2019/0000110471-20-000008/filing.txt @@ -0,0 +1,5829 @@ +Document +false --12-28 FY 2019 0000110471 26600000 26700000 0.24 0.32 0.40 1 1 320000000 320000000 107609206 108329250 0 0 178100000 157300000 3300000 2600000 3900000 300000 1300000 2200000 3500000 700000 500000 7000000 1300000 200000 227464 219039 368326 488655 154084 38655 44480 7761 7460 15905681 27181512 1639732 5349262 10914965 P5Y 52 52 800000 0 0 0 1500000 0 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Employer +Identification No.) +9341 Courtland Drive N.E. +Rockford +, +Michigan +49351 +(Address of principal executive offices) +(Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +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 Par Value +WWW +New York Stock Exchange +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. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ +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 +þ +Accelerated filer +☐ +Non-accelerated filer +¨ +Smaller reporting company +☐ +Emerging growth company +☐ +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 Act. ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 28, 2019 , the last business day of the registrant’s most recently completed second fiscal quarter: $ 2,285,790,560 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 14, 2020 : 81,929,364 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting expected to be held April 30, 2020 are incorporated by reference into Part III of this report. +Table of Contents +Table of Contents +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +21 +Item 2. +Properties +21 +Item 3. +Legal Proceedings +21 +Item 4. +Mine Safety Disclosures +21 +Supplemental Item. +Executive Officers of the Registrant +21 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6. +Selected Financial Data +23 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +24 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +34 +Item 8. +Financial Statements and Supplementary Data +35 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +75 +Item 9A. +Controls and Procedures +75 +Item 9B. +Other Information +75 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +75 +Item 11. +Executive Compensation +75 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +75 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +75 +Item 14. +Principal Accounting Fees and Services +75 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +75 +Item 16. +Form 10-K Summary +78 +SIGNATURES +79 +Appendix A: Financial Statement Schedule +A-1 +3 +Table of Contents +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• +changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• +the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• +the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• +the inability to effectively manage inventory levels; +• +increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• +foreign currency exchange rate fluctuations; +• +currency restrictions; +• +capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; +• +the recent coronavirus outbreak; +• +the cost and availability of raw materials, inventories, services and labor for contract manufacturers; +• +labor disruptions; +• +changes in relationships with, including the loss of, significant wholesale customers; +• +risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; +• +risks related to expansion into new markets and complementary product categories as well as consumer-direct operations; +• +the impact of seasonality and unpredictable weather conditions; +• +changes in general economic conditions and/or the credit markets on the Company’s distributors, suppliers and retailers; +• +increases in the Company’s effective tax rates; +• +failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• +the risks of doing business in developing countries and politically or economically volatile areas; +• +the ability to secure and protect owned intellectual property or use licensed intellectual property; +• +the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health and settlements or other dispositions of such litigation or other legal proceedings; +• +risks of breach of the Company’s databases or other systems, or those of its vendors, which contain certain personal information, payment card data or proprietary information, due to cyberattack or other causes; +• +problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; +• +strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, and implementing new initiatives and ventures; +• +the risk of impairment to goodwill and other intangibles; +• +the success of the Company’s restructuring and realignment initiatives undertaken from time to time; and +• +changes in future pension funding requirements and pension expenses. +These or other uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +4 +Table of Contents +PART I +Item 1. +Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company, a Delaware corporation, is the successor of a Michigan corporation of the same name, originally organized in 1906, which, in turn, was the successor of a footwear business established in Grand Rapids, Michigan in 1883. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable operating segments. +• +Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate expenses, organizational transformation costs, reorganization costs, restructuring and other related costs, impairment of intangible assets, environmental and other related costs, a foreign currency remeasurement gain recorded in the second quarter of fiscal 2018 and a pension settlement loss related to the Company's purchase of pension annuity contracts in the fourth quarter of fiscal 2018 . The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. The Company’s Global Operations Group is responsible for sourcing, distribution, logistics and customer support. +The Company's operating segments and related brands are described in more detail below. +1. +Wolverine Michigan Group +Merrell ® : Merrell ® exists to give you all you really need to discover the simple yet profound power of the trail. We believe the trail is for everyone and our goal is to provide thoughtfully designed, rigorously tested products that over-deliver on performance, versatility and durability. The brand's slogan is "When you’ve got air in your lungs and good shoes on your feet, you’ve got everything you need." Merrell ® designs and creates products (footwear, apparel and accessories) in strategic categories such as technical hiking, trail running, training, lifestyle and work for men, women and children. Merrell ® footwear is sold in a variety of channels including outdoor +5 +Table of Contents +specialty, sporting goods and department stores, internet and catalog retailers, Merrell ® retail stores and an eCommerce site. Merrell ® apparel and accessories helps extend the brand to create a versatile line of apparel built for both performance and lifestyle. Merrell ® also creates and markets a line of accessories including daypacks and duffels fit for adventure. +Cat ® Footwear: Cat ® footwear comes from a world of industry and action. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® footwear has been designing and engineering quality footwear that lives up to the hard-working reputation of the Caterpillar ® brand. Cat ® footwear originally created a small collection of rugged work boots designed to provide workers with comfort and durability that met the challenges of the worksite. Today, Cat ® footwear offers a wide range of footwear, including work boots, casual shoes and women’s fashion products - sold through a global distribution network. Cat ® , Caterpillar ® , Build For It ® , "Caterpillar Yellow" and "Power Edge" are registered trademarks of Caterpillar Inc. +Wolverine ® : The Wolverine ® brand offers high-quality boots and shoes to deliver comfort and durability. The Wolverine ® brand, in existence since 1883, markets footwear in the trade work, outdoor recreation, and lifestyle and heritage categories. The development of DuraShocks ® and EPX Anti-Fatigue ® technologies, as well as the development of the Contour Welt ® line, allows the Wolverine ® brand to offer a broad line of footwear with a focus on comfort. The Wolverine ® work product line targets skilled trade workers and focuses on work boots and shoes with protective features such as toe caps, metatarsal guards and electrical hazard protection. The Wolverine ® outdoor recreation product lines incorporate DuraShocks ® and other technologies and comfort features into products designed for outdoor sport use and to meet the needs of hunters, fishermen and other active outdoor sports enthusiasts. The brand's lifestyle and heritage line targets consumers looking for rugged and well-crafted casual boots and shoes. The brand also markets a line of work and rugged casual Wolverine ® brand apparel and socks, and licenses the Wolverine ® brand for use on eyewear, gloves and base layers. +Chaco ® : Chaco’s whitewater heritage and 30-year history of outfitting rafting guides has helped cement its place in the high-performance footwear space. Every product Chaco ® makes exists to connect life-loving explorers to the wonders of the world through all-terrain versatility, unmatched durability, and signature LUVSEAT™ footbed arch support. Consumers can demonstrate their own creativity and express themselves through the virtually limitless sandal customization options available through the MyChaco design program. The brand’s products are distributed primarily through leading outdoor and footwear specialty retailers. as well as through an eCommerce site and other leading internet retailers. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire our consumers to live life on the bright side. We believe that optimism is contagious and that by encouraging positivity we can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Bates ® : The Bates ® brand is a leader in supplying footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of its footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +Hytest ® Safety Footwear: The Hytest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. Hytest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +6 +Table of Contents +2. +Wolverine Boston Group +Sperry ® : Sperry ® is a leading global nautical performance and lifestyle brand offering footwear, apparel and accessories to a broad range of consumers. The brand has been an American favorite since 1935 with the introduction of the industry’s first boat shoe. Today, Sperry ® remains the leader in the boat shoe category, but has also expanded its business into casuals, dress casuals, wet weather, boots and vulcanized product categories. Sperry ® has evolved into a well-balanced, multi-category (footwear, apparel and accessories) and year-round lifestyle brand for men and women. The Sperry core product lines have evolved from the A/O Boat Shoe to include Saltwater in Wet Weather and the CVO, Striper and Crest Vibe. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Sperry ® retail stores and an eCommerce site. +Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Tread and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through our Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as Saucony ® retail stores and an eCommerce site. +Keds ® : Keds ® is an authentic, casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +Kids Footwear: The Kids footwear business includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are distributed through premium and better lifestyle retailers, outdoor and sporting good retailers, as well as through an eCommerce site and by a license partner. +Other Businesses +In addition to its reportable segments, the Company operates a performance leather business, sourcing operations and a multi-brand consumer-direct business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Sourcing Division - The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Consumer-Direct Division - The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfolio and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each operating segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the +7 +Table of Contents +Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• +The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• +The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• +The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• +The Company also operates brick and mortar retail stores and eCommerce sites. +A broad distribution base insulates the Company from dependence on any one customer. No single customer accounted for more than 10% of the Company’s consolidated revenue in fiscal 2019 , 2018 or 2017 . +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico, Colombia and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +8 +Table of Contents +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , Hytest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license has a term through December 31, 2024 and the Harley-Davidson ® license has a term through December 31, 2022. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Order Backlog +At February 22, 2020 , the Company had an order backlog of $ 974 million , compared to an order backlog of $ 964 million at February 23, 2019 . Substantially all of the backlog as of February 22, 2020 relates to orders for products expected to ship in fiscal 2020 . Orders in the backlog are subject to cancellation by customers and to changes in planned customer demand or at-once orders. The backlog at any particular time is affected by a number of factors, including seasonality, retail conditions, expected customer demand, product availability and the schedule for the manufacture and shipment of products. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be predictive of eventual actual shipments. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, the Revolving Credit Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing and ability to control costs and the ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies +9 +Table of Contents +from time to time to resolve cleanup issues at various sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to our Consolidated Financial Statements. +Employees +As of December 28, 2019 , the Company had approximately 4,000 domestic and foreign production, office and sales employees. The Company presently considers its employee relations to be good. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. +Risk Factors +Risks Related to the Company’s Business +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s results of operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global, regional or local economic conditions, and how such conditions may impact them. Disposable income and consumer spending may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, inflation, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer spending could adversely affect demand for the Company’s products, which could adversely affect the Company's results of operations. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and consumer-direct footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able, or elect, to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own more recognized brands; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences quickly will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images +10 +Table of Contents +to be outdated, associate its brands with styles that are no longer popular and decrease demand for its products. Such failures could result in reduced sales, excess inventory, trade name impairments, lower gross margin and other adverse impacts on the Company’s operating results. +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions, including those due to changes in trade relations between the U.S. and other countries, may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, our foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits denominated in foreign currencies are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. The Company may seek to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, but the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on the Company’s business and results of operations. +Significant capacity constraints, production disruptions, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. The Company may experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political +11 +Table of Contents +relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Other adverse developments, such as the coronavirus outbreak discussed below, could cause significant production and shipping delays. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +The recent coronavirus outbreak could harm our business. +The recent outbreak of the coronavirus first identified in Wuhan, Hubei Province, China, could cause disruption to the Company’s suppliers and manufacturers located in China and elsewhere. Such disruption may occur as a result of facility closings, worker absenteeism, quarantines or other travel or health-related restrictions as a result of the coronavirus outbreaks or concern over the coronavirus. If the Company’s suppliers or manufacturers are so affected, the Company’s supply chain could be disrupted and its product shipments could be delayed. The Company may not be able to find alternative manufacturers suppliers or delivery methods on a cost-effective basis or at all. Closed retail stores and reduced consumer traffic and spending within or outside of China if the virus continues to spread could adversely sales of the Company’s products. If any of the foregoing occurs over a prolonged period, it could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products is dependent on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, transportation and shipping, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases pigskin hides for its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have an adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success depends on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in +12 +Table of Contents +the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company’s consumer-direct operations have required, and will continue to require, a substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s consumer-direct operations, including its brick and mortar locations as well as its eCommerce and mobile channels, have required substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company has also made substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements, and employee-related costs. The success of our consumer-direct operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic, and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as damage its reputation and brands, and could have an adverse effect on the Company’s results of operations and financial position. +Expanding the Company’s brands into new markets and product categories and re-aligning its consumer-direct operations may be difficult and costly, and unsuccessful efforts to do so may adversely affect the Company’s brands and business. +As part of the Company’s growth strategy, it seeks to enhance the positioning of its brands, to extend its brands into complementary product categories and to expand geographically. The Company may not be able to successfully implement any or all of these growth strategies, and unsuccessful efforts to do so could have an adverse effect on its results of operations and financial position. +Part of the future growth and profitability of the Company’s consumer-direct operations is significantly dependent on the Company successfully developing and maintaining its eCommerce and mobile platforms. The Company cannot be sure whether its eCommerce and mobile platforms will be successful. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are dependent on future weather conditions and its ability to react to changes in weather conditions. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets affecting our distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could have an adverse impact on the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact the Company's third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet consumers’ demands and, in turn, the Company's results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +13 +Table of Contents +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have an adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on non-cash undistributed earnings that it intends to permanently reinvest in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have an adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. The final determination of any of these examinations could have an adverse effect on the Company’s results of operations and financial position. +Failure of the Company’s third-party licensees and distributors to meet sales goals or to make timely payments on amounts owed to the Company could adversely affect the Company’s financial performance. +In many international markets, independent third-party licensees or distributors sell the Company’s products. Failure by the Company’s licensees or distributors to meet planned annual sales goals or to make timely payments on amounts owed to the Company could have an adverse effect on the Company’s business, results of operations and financial position. If a change in licensee or distributor becomes necessary, it may be difficult and costly to locate an acceptable substitute distributor or licensee and the Company may incur increased costs and experience substantial disruption and a resulting loss of sales and brand equity in the market where such licensee or distributor operates. +The Company’s reputation and competitive position depend on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could receive negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 170 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts and concerns regarding public health threats, such as the coronavirus outbreak, may create significant global economic and political uncertainties that may have adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +Further, geo-political events in the countries and territories in which the Company markets or sources its products could have an adverse effect on the Company’s business. For example, in June 2016, voters in the United Kingdom approved an advisory referendum to withdraw from the European Union (“Brexit”) and the United Kingdom withdrew from the European Union on January 31, 2020. The uncertainties regarding trading between the United Kingdom and the European Union following an eleven-month transition period, and the terms of the trade agreement to be negotiated during this period, once determined, could disrupt the free movement of goods, services, and people between the United Kingdom and the European Union, adversely impact investor and consumer confidence, decrease consumer discretionary spending, including on our products, and result in increased legal and regulatory complexities. Any of these effects, among others, could adversely affect our business, results of operations and financial condition. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which the Company operates could have an adverse effect on the +14 +Table of Contents +Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in China or any other market in which the Company operates, or in its industry. +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Global capital markets could enter a period of severe disruption and instability, which could have an adverse effect on debt and equity markets in the United States, which in turn could have a negative impact on the Company’s business, financial condition and results of operations. +The U.S. and global capital markets have experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may recur for a prolonged period of time or materially worsen in the future. +The Company may in the future have difficulty accessing capital, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels, European sovereign debt, Chinese economic slowdown or other global economic conditions could have an adverse effect on our business, financial condition and results of operations. +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive depends upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the licensor of any of these license agreements could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s inability to attract and retain executive managers and other key employees, or the loss of one or more executive managers or other key employees, could adversely affect the Company’s business. +The Company depends on its executive management and other key employees. In the footwear, apparel and consumer-direct markets, competition for key executive talent is intense and the Company’s failure to identify, attract or retain executive managers or other key employees could adversely affect its business. The Company must offer and maintain competitive compensation packages to effectively recruit and retain such individuals. Further, the loss of one or more executive managers or other key employees, or the Company’s failure to successfully implement succession planning, could adversely affect the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations in the countries and territories in which the Company operates and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care +15 +Table of Contents +and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could substantially harm the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company strives to comply with all applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. It is possible, however, that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If so, the Company may suffer damage to its reputation and be subject to proceedings or actions against it by governmental entities or others. Any such proceeding or action could hurt the Company’s reputation, force it to spend significant amounts to defend or change its practices, distract its management from operating the Company's business, increase its costs of doing business, and result in monetary liability. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to ensure it remains in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease, its opportunities for growth may be curtailed by its compliance capabilities or reputational harm and its potential liability for security breaches may increase. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may distract the Company’s management team and require it to undertake costly and time consuming remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could result in loss of business. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +The Company is also subject to U.S. and international data privacy and cybersecurity laws and regulations, which may impose fines and penalties for noncompliance and may have an adverse effect on the Company's operations. For example, in 2016, the European Union formally adopted the General Data Protection Regulation ("GDPR"), which applied in all European Union member states effective May 25, 2018. GDPR introduces new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. GDPR increases our responsibility and potential liability in relation to personal data that we collect, process and transfer, and we have put in place additional mechanisms to ensure compliance with the new data protection rules. Any failure to comply with these rules and related national laws of European Union member states, could lead to government enforcement actions and significant penalties against us, and could adversely affect our business, financial condition, cash flows and results of operations. In addition, California recently adopted the California Consumer Privacy Act (“CCPA”), which became effective January 1, 2020, and limits how we may collect and use personal data. The effects of the CCPA potentially are far-reaching and may require us to modify our data processing practices and policies and incur substantial compliance-related costs and expenses. Compliance with any of the foregoing laws and regulations can be costly. A violation of any laws or regulations relating to the collection or use of personal information could result in the imposition of fines against us. +16 +Table of Contents +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any future material interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company's operations have become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible adverse impact on its financial condition and results of operations. While the Company maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses and would not remedy damage to its reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistics and distribution systems include computer-controlled and automated equipment, which may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. Therefore, its operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers, including coronavirus outbreak discussed above. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity depends upon the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected. +17 +Table of Contents +The Company’s business depends on effective marketing, advertising and promotional programs. +Consumer traffic and demand for the Company's merchandise is influenced by the Company’s advertising, marketing and promotional activities, the name recognition and reputation of its brands. Although the Company uses marketing, advertising and promotional programs to attract consumers through various media, including social media, database marketing and print, its competitors may spend more or use different approaches, which could provide them with a competitive advantage. The Company’s promotional activity and other programs may not be effective, may be perceived negatively or could require increased expenditures, which could adversely impact the Company’s business, results of operations and financial position. +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits of the acquisition on a timely basis or at all; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company may be unable to provide assurance that it will be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but it may nonetheless incur material costs in connection with an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +Maintenance and growth of the Company’s business depends upon the availability of adequate capital. +The maintenance and growth of the Company’s business depends on the availability of adequate capital, which in turn depends in large part on cash flow generated by the Company’s business and the availability of equity and debt financing. The Company cannot provide assurance that its operations will generate positive cash flow or that it will be able to obtain equity or debt financing on acceptable terms, or at all. Further, the Company cannot provide assurance that it will be able to finance any expansion plans. +An impairment of goodwill or other intangibles could have an adverse impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect the Company’s results of operations. +Changes in government regulation may increase the Company’s costs of compliance and failure to comply with government regulations or other standards may adversely affect its brands and business. +The Company’s business is affected by changes in government and regulatory policies in the U.S. and in foreign jurisdictions. New requirements relating to product safety and testing and new environmental requirements, as well as changes in tax laws, duties, tariffs and quotas, could have a negative impact on the Company’s ability to produce and market footwear at competitive prices. Failure to comply with such regulations, as well as to comply with ethical, social, product, labor and environmental standards, could also jeopardize the Company’s reputation and potentially lead to various adverse consumer actions, including boycotts. Any negative publicity about these types of concerns may reduce demand for the Company’s products. Damage to the Company’s reputation or loss of consumer confidence for any of these or other reasons could adversely affect the Company’s results of operations, as well as require additional resources to rebuild its reputation and brand value. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among +18 +Table of Contents +other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Various third parties could also bring actions against the Company alleging health-related or other harm arising from non-compliance. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. For example, regulatory actions, putative class actions lawsuits and individual lawsuits have been filed against the Company alleging claims relating to property damage, remediation and human health effects, among other claims, arising from the Company’s operations, including its handling, storage, treatment, transportation and/or disposal of waste. These claims are discussed in more detail in Note 17 to the consolidated financial statements. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company that might benefit the Company's stockholders. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to replace the majority of the Company's directors and take other corporate actions that may be beneficial to the Company’s stockholders. +There are risks, including stock market volatility, inherent in owning the Company’s common stock. +The market price and volume of the Company’s common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1A on the Company’s results of operations and financial position, or a change in opinion in the market regarding the Company’s business prospects or other factors, many of which may be outside the Company’s immediate control. Changes in the amounts and frequency of share repurchases or dividends also could adversely affect the value of the Company’s common stock. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• +In the wholesale business, sales of footwear are dependent on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• +Wholesale customers set the delivery schedule for shipments of the Company’s products, which could cause shifts of sales between quarters. +• +The Company's estimated annual tax rate is based on projections of our domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• +The Company's earnings are also sensitive to a number of factors that are beyond the Company’s control, including manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates +19 +Table of Contents +are based upon their own opinions and are often different from the Company’s estimates or expectations. If the Company’s operating results are below the estimates or expectations of public market analysts and investors, the Company’s stock price could decline. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and the Company may be unable to satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +The Company’s results of operations, financial position, and cash flows, and its ability to conduct business in international markets may be affected by legal, regulatory, political and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political and economic risks. These include: +• +the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• +compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• +unexpected changes in regulatory requirements; and +• +new tariffs or other barriers in some international markets, including China. +The Company is also subject to general political and economic risks in connection with our international operations, including: +• +political instability, including due to Brexit, and terrorist attacks; +• +differences in business culture; +• +different laws governing relationships with employees and business partners; +• +changes in diplomatic and trade relationships, including with China; and +• +general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States or foreign countries upon the import or export of our products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have an adverse effect on the Company’s business in the future or may require us to exit a particular market or significantly modify our current business practices. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company's internal control policies and procedures may not protect it from reckless or criminal acts committed by its employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in an adverse effect on the results of operations or financial condition. +20 +Table of Contents +Item 1B. +Unresolved Staff Comments +None. +Item 2. +Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 225,000 square feet in Rockford, Michigan, as well as a leased facility of approximately 136,000 square feet in Waltham, Massachusetts. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center of approximately 460,000 square feet in Howard City, Michigan; a leased distribution center of approximately 342,000 square feet in Ontario, Canada and a leased distribution center of approximately 125,000 square feet in Heerhugowaard, Netherlands. +The Company also leases or owns offices, showrooms and other facilities throughout the U.S., Canada, the United Kingdom, continental Europe, Hong Kong and China to meet its operational requirements. In addition, the Company operates 96 retail stores primarily through leases with various third-party landlords in the U.S. that collectively occupying approximately 271,000 square feet. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. +Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. For a discussion of legal matters, see Note 17 to our Consolidated Financial Statements. +Item 4. +Mine Safety Disclosures +Not applicable. +Supplemental Item. Information about our Executive Officers +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of January 31, 2020 . The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, at the pleasure of management. +Name +Age +Positions held with the Company +Kyle Hanson +54 +Senior Vice President, General Counsel and Secretary +Michael Jeppesen +60 +President, Global Operations Group +Amy M. Klimek +46 +Senior Vice President, Global Human Resources +Blake W. Krueger +66 +Chairman of the Board, Chief Executive Officer and President +Todd Spaletto +48 +President, Wolverine Michigan Group +Michael D. Stornant +53 +Senior Vice President, Chief Financial Officer and Treasurer +James D. Zwiers +52 +Executive Vice President +Kyle L. Hanson has served the Company as Senior Vice President, General Counsel and Secretary since June 2018. From March 2014 through June 2018, she was Vice President, General Counsel and Corporate Secretary at The Buckle, Inc., a publicly traded footwear and apparel retailer. +Michael Jeppesen has served the Company as President, Global Operations Group since January 2012. From April 2016 through January 2019, he also served as President, Wolverine Heritage Group. +Amy M. Klimek has served the Company as Senior Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. +Blake W. Krueger has served the Company as Chairman since January 2010 and as Chief Executive Officer and President since April 2007. +Todd Spaletto has served the Company as President, Wolverine Michigan Group since February 2019. From February 2017 through January 2019, he served as President of the Wolverine Outdoor & Lifestyle Group. From February 2011 to January 2017, he was President, Americas for The North Face, Inc., a supplier of outdoor apparel, equipment and footwear. +21 +Table of Contents +Michael D. Stornant has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. +James D. Zwiers has served the Company as Executive Vice President since February 2017. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group. +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The number of stockholders of record on February 14, 2020 , was 816. +A quarterly dividend of $0.10 per share was declared on February 5, 2020 . The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2020 . +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +Five-Year Cumulative Total Return Summary +22 +Table of Contents +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2019 . +Issuer Purchases of Equity Securities +Period +Total Number of Shares Purchased +Average Price Paid per Share +Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs +Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (September 29, 2019 to November 2, 2019) +Common Stock Repurchase Program (1) +184,003 +$ +26.90 +184,003 +$ +508,440,465 +Employee Transactions (2) +7,023 +$ +27.64 +Period 11 (November 3, 2019 to November 30, 2019) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +508,440,465 +Employee Transactions (2) +— +$ +— +Period 12 (December 1, 2019 to December 28, 2019) +Common Stock Repurchase Program (1) +— +$ +— +— +$ +508,440,465 +Employee Transactions (2) +578 +$ +33.03 +Total for the fourth Quarter Ended December 28, 2019 +Common Stock Repurchase Program (1) +184,003 +$ +26.90 +184,003 +$ +508,440,465 +Employee Transactions (2) +7,601 +$ +28.05 +(1) +On September 11, 2019, the Company’s Board of Directors approved a new common stock repurchase program that authorizes the repurchase of $400.0 million of common stock over a four-year period, incremental to the $113.4 million that was remaining under the previous program. The annual amount of any stock repurchases is restricted under the terms of the Company's Credit Agreement and senior notes indenture. +(2) +Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +Item 6. +Selected Financial Data +Five-Year Operating and Financial Summary (1) +Fiscal Year +(In millions, except per share data) +2019 +2018 +2017 +2016 +2015 +Summary of Operations +Revenue +$ +2,273.7 +$ +2,239.2 +$ +2,350.0 +$ +2,494.6 +$ +2,691.6 +Net earnings attributable to Wolverine World Wide, Inc. +128.5 +200.1 +0.3 +87.7 +122.8 +Net earnings per share of common stock: +Basic net earnings (2) +$ +1.48 +$ +2.07 +$ +— +$ +0.90 +$ +1.22 +Diluted net earnings (2) +1.44 +2.05 +— +0.89 +1.20 +Cash dividends declared +0.40 +0.32 +0.24 +0.24 +0.24 +Financial Position at Year-End +Total assets +$ +2,480.0 +$ +2,183.1 +$ +2,399.0 +$ +2,431.7 +$ +2,434.4 +Debt +798.4 +570.5 +782.6 +820.7 +809.8 +(1) +This summary should be read in conjunction with the consolidated financial statements and the related notes, which are included in Item 8 of this Annual Report on Form 10-K. +(2) +Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for unvested restricted common stock. Diluted earnings per share assume the exercise of dilutive stock options and the vesting of all outstanding restricted stock and units. +23 +Table of Contents +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth ” and the Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 170 countries and territories at December 28, 2019 , including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At December 28, 2019 , the Company operated 96 retail stores in the U.S. and Canada and 41 consumer-direct eCommerce sites. +2019 FINANCIAL OVERVIEW +• +Revenue was $ 2,273.7 million for fiscal 2019 , representing an increase of 1.5 % compared to the prior year's revenue of $ 2,239.2 million . The increase reflects a 2.2% increase from the Michigan Group and a 1.7% increase from the Boston Group. Changes in foreign exchange rates decreased revenue by $16.7 million during fiscal 2019 . +• +Gross margin for fiscal 2019 was 40.6 %, a decrease of 50 basis points from fiscal 2018 . +• +The effective tax rate in fiscal 2019 was 11.7 %, compared to 11.9 % in fiscal 2018 . +• +Diluted earnings per share for fiscal 2019 was $ 1.44 , compared to $ 2.05 for fiscal 2018. +• +The Company declared cash dividends of $ 0.40 per share in fiscal 2019 and $ 0.32 per share in fiscal 2018 . +• +Net cash provided by operating activities was $ 222.6 million in fiscal 2019 . +• +The Company executed $ 319.2 million of share repurchases in fiscal 2019 at an average price of $29.24 per share. +24 +Table of Contents +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +Percent Change vs. Prior Year +(In millions, except per share data) +2019 +2018 +2017 +2019 +2018 +Revenue +$ +2,273.7 +$ +2,239.2 +$ +2,350.0 +1.5 +% +(4.7 +)% +Cost of goods sold +1,349.9 +1,317.9 +1,426.6 +2.4 +(7.6 +) +Restructuring costs +— +— +9.0 +— +(100.0 +) +Gross profit +923.8 +921.3 +914.4 +0.3 +0.8 +Selling, general and administrative expenses +669.3 +654.1 +706.0 +2.3 +(7.4 +) +Restructuring and other related costs +— +— +72.9 +— +(100.0 +) +Impairment of intangible assets +— +— +68.6 +— +(100.0 +) +Environmental and other related costs +83.5 +15.3 +35.3 +445.8 +(56.7 +) +Operating profit +171.0 +251.9 +31.6 +(32.1 +) +697.2 +Interest expense, net +30.0 +24.5 +32.1 +22.4 +(23.7 +) +Debt extinguishment and other costs +— +0.6 +— +(100.0 +) +— +Other expense (income), net +(4.9 +) +(0.6 +) +10.1 +716.7 +(105.9 +) +Earnings (loss) before income taxes +145.9 +227.4 +(10.6 +) +(35.8 +) +* +Income tax expense (benefit) +17.0 +27.1 +(9.9 +) +(37.3 +) +(373.7 +) +Net earnings (loss) +128.9 +200.3 +(0.7 +) +(35.6 +) +* +Less: net earnings (loss) attributable to noncontrolling interests +0.4 +0.2 +(1.0 +) +100.0 +(120.0 +) +Net earnings attributable to Wolverine World Wide, Inc. +$ +128.5 +$ +200.1 +$ +0.3 +(35.8 +)% +* +Diluted earnings per share +$ +1.44 +$ +2.05 +$ +— +(29.8 +)% +— +% +*Percentage change not meaningful +REVENUE +Revenue was $ 2,273.7 million for fiscal 2019 , representing an increase of 1.5% compared to the prior year's revenue of $ 2,239.2 million . The increase reflected a 2.2% increase from the Michigan Group and a 1.7% increase from the Boston Group. The Michigan Group's revenue increase was driven by a high-single digit increase from Merrell ® and a low-teens increase from Cat ® , partially offset by low-teens decreases from Chaco ® and Hush Puppies ® . The Boston Group's revenue increase was due to a mid-single digit increase for Sperry ® and a low-teens increase from Keds ® , partially offset by a mid-single digit decline for Saucony ® . International revenue represented 33.7 %, 32.8 % and 31.5 % of total reported revenues in fiscal years 2019 , 2018 and 2017 , respectively. Changes in foreign exchange rates decreased revenue by $16.7 million during fiscal 2019 . +Revenue was $2,239.2 million for fiscal 2018, representing a decrease of 4.7% compared $2,350.0 million in fiscal 2017. The decrease reflects the closure of retail stores ($66.0 million), the change in business model for Stride Rite ® ($47.5 million), the divestiture of the Sebago ® brand ($26.0 million) and the sale of the Department of Defense contract business for Bates ® ($26.1 million), partially offset by significant growth in eCommerce across all brands ($43.0 million). Changes in foreign exchange rates increased revenues by $4.1 million in fiscal 2018. +GROSS MARGIN +For fiscal 2019 , the Company’s gross margin was 40.6 %, compared to 41.1 % in fiscal 2018 . The gross margin decrease was driven by unfavorable product mix (35 basis points), business model changes for certain international wholesale customers (60 basis points) and additional close-out sales (35 basis points), partially offset by the acquisition of the Saucony ® distributor in Italy (35 basis points), a higher mix of higher gross margin consumer-direct revenue (35 basis points) and reduced markdowns (15 basis points). +For fiscal 2018, the Company’s gross margin was 41.1%, compared to 38.9% in fiscal 2017. The gross margin increase was driven by favorable product mix (70 basis points), divestitures and portfolio changes (75 basis points), store closures (20 basis points), lower restructuring and other related costs (40 basis points) and the favorable impact of foreign exchange (15 basis points). +25 +Table of Contents +OPERATING EXPENSES +Operating expenses increase d $ 83.4 million in fiscal 2019 , to $ 752.8 million . The increase was driven by higher environmental and other related costs ($ 68.2 million ), higher general and administration costs ($15.7 million), higher distribution costs ($7.5 million), higher reorganization costs ($ 7.1 million ) and higher selling expenses ($4.6 million). These increases were partially offset by lower incentive compensation costs of $ 16.7 million . +Operating expenses decreased $213.4 million in fiscal 2018, to $669.4 million. The decrease was driven by lower restructuring and other related costs ($72.9 million), lower impairment of intangible assets ($68.6 million), lower environmental and other related costs ($20.0 million), lower transformation costs ($37.7 million) and lower selling expenses ($29.1 million) due to the closure of certain retail stores in fiscal 2017, partially offset by a higher investment in advertising ($13.7 million) as part of the Company's growth agenda. +INTEREST, OTHER AND TAXES +Net interest expense was $ 30.0 million in fiscal 2019 compared to $ 24.5 million in fiscal 2018 . The increase was driven by higher average debt principal balances due primarily to repurchases of the Company's stock and lower interest income. Net interest expense decreased from $ 32.1 million in fiscal 2017 to $ 24.5 million in fiscal 2018 due to a lower effective interest rate on the Company's debt, lower average debt principal balances and higher interest income. +The Company incurred $0.6 million of debt extinguishment and other costs in connection with the refinancing of the Company's debt in the fourth quarter of fiscal 2018. +The effective tax rate in fiscal 2019 was 11.7 %, compared to 11.9 % in fiscal 2018 . The lower effective tax rate in fiscal 2019 reflects the positive net impact from one-time discrete items combined with a shift in income between tax jurisdictions with differing tax rates, primarily associated with a decrease in U.S. income compared to the prior year due primarily to higher reorganization costs and environmental and other related costs. +The effective tax rate in fiscal 2018 was 11.9%, compared to 93.7% in fiscal 2017. The lower effective tax rate in fiscal 2018 reflects the positive net impact from one-time discrete items, primarily a voluntary pension contribution of $60.0 million and a lower U.S. corporate tax rate following enactment of the Tax Cuts and Jobs Act ("TCJA"). These benefits were partially offset by a shift in income between tax jurisdictions with differing tax rates, primarily associated with an increase in U.S. income compared to the prior year due primarily to lower restructuring and other related costs, impairment of intangible assets and organizational transformation costs. +Other income was $4.9 million in fiscal 2019 compared to $0.6 million in fiscal 2018 . The increase was driven by the inclusion of sublease income in 2019 due to the implementation of ASU 2016-02 during the first quarter of 2019 ($ 4.0 million ), the reclassification of the ineffective portion of unrealized gains on foreign currency hedges ($1.2 million) in fiscal 2019 and a pension settlement loss recognized in fiscal 2018 ($ 7.2 million ), partially offset by a foreign currency remeasurement gain in fiscal 2018 ($5.9 million). +REPORTABLE OPERATING SEGMENTS +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable operating segments. During the first quarter of 2019, the brands that were formerly aligned with the Wolverine Outdoor & Lifestyle Group and Wolverine Heritage Group were realigned into a new operating segment, the Wolverine Michigan Group. The change was to align our brands under key leadership to best support innovation and efficiency. All prior period disclosures have been retrospectively adjusted to reflect these new reportable operating segments. +• +Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate expenses, organizational transformation costs, reorganization costs, restructuring and other related costs, impairment of intangible assets, environmental and other related costs, a foreign currency remeasurement gain recorded in the second quarter of fiscal 2018 and a pension settlement loss related to the Company's purchase of pension annuity contracts in the fourth quarter of fiscal 2018 . +26 +Table of Contents +The reportable operating segment results for fiscal years 2019 , 2018 and 2017 are as follows: +Fiscal Year +Percent Change +Fiscal Year +Percent Change +(In millions) +2019 +2018 +Change +2018 +2017 +Change +REVENUE +Wolverine Michigan Group +$ +1,299.7 +$ +1,272.2 +$ +27.5 +2.2 +% +$ +1,272.2 +$ +1,267.8 +$ +4.4 +0.3 +% +Wolverine Boston Group +910.9 +895.5 +15.4 +1.7 +% +895.5 +988.8 +(93.3 +) +(9.4 +)% +Other +63.1 +71.5 +(8.4 +) +(11.7 +)% +71.5 +93.4 +(21.9 +) +(23.4 +)% +Total +$ +2,273.7 +$ +2,239.2 +$ +34.5 +1.5 +% +$ +2,239.2 +$ +2,350.0 +$ +(110.8 +) +(4.7 +)% +OPERATING PROFIT (LOSS) +Wolverine Michigan Group +$ +244.8 +$ +257.6 +$ +(12.8 +) +(5.0 +)% +$ +257.6 +$ +243.7 +$ +13.9 +5.7 +% +Wolverine Boston Group +153.8 +157.5 +(3.7 +) +(2.3 +)% +157.5 +153.6 +3.9 +2.5 +% +Other +2.9 +3.1 +(0.2 +) +(6.5 +)% +3.1 +5.2 +(2.1 +) +(40.4 +)% +Corporate +(230.5 +) +(166.3 +) +(64.2 +) +38.6 +% +(166.3 +) +(370.9 +) +204.6 +(55.2 +)% +Total +$ +171.0 +$ +251.9 +$ +(80.9 +) +(32.1 +)% +$ +251.9 +$ +31.6 +$ +220.3 +697.2 +% +Further information regarding the reportable operating segments can be found in Note 18 to the consolidated financial statements. +Wolverine Michigan Group +The Michigan Group’s revenue increase d $ 27.5 million , or 2.2 %, in fiscal 2019 compared to fiscal 2018 . The increase was due to a high-single digit increase from Merrell ® and a low-teens increase from Cat ® , partially offset by low-teens decreases from Chaco ® and Hush Puppies ® . The Merrell ® increase was due to growth in Asia Pacific, Europe and Latin America and strong eCommerce growth in the mid-twenties. The Cat ® increase was due to strength in the Work category and business model changes for certain international customers. The Chaco ® decline was due to high inventory levels at retailers and competitive pricing pressure on certain key sandal offerings. The Hush Puppies ® decline was due to late deliveries of product and lower demand in the U.S. due to slow sell through at retail and declines in Canada, Europe and Latin America. +The Michigan Group’s operating profit decrease d $ 12.8 million , or 5.0 %, in fiscal 2019 compared to fiscal 2018 . The decrease was due to a 140 basis point decline in gross margin and a $6.5 million increase in selling, general and administrative costs. The gross margin decline was due to the bankruptcy of an international distributor, product mix, higher close-out sales and business model changes for certain international distributors. The increase in selling, general and administrative expenses was due to investments in eCommerce growth and new Merrell ® stores. +The Michigan Group’s revenue increased $4.4 million, or 0.3%, in fiscal 2018 compared to fiscal 2017. The increase was due to mid-single digit growth in Merrell ® , high-single digit growth from Wolverine ® and mid-single digit growth in Cat ® , partially offset by the divestiture of the Sebago ® brand ($26.0 million) and the sale of the Department of Defense contract business ($26.1 million). The Merrell ® revenue increase is the result of new product introductions, a strong at-once business, strength in the Hike, Work and Outdoor Life categories, and strong eCommerce growth that was partially offset by a $9.2 million decline due to store closures in 2017. The Wolverine ® increase was driven by a mid-forties increase in eCommerce and a mid-single digit increase in U.S. wholesale channel resulting from strength in the Work category. The Cat ® increase is due to a business model change in certain international markets, as well as growth in the U.S. +The Michigan Group’s operating profit increased $13.9 million, or 5.7%, in fiscal 2018 compared to fiscal 2017. The operating profit increase was due to the revenue growth and improved operating margin from Merrell ® , Wolverine ® and Cat ® . The Merrell ® improvement resulted from better product mix and retail store closures in 2017, partially offset by planned investments in growth. The Wolverine ® and Cat ® improvements are due to lower product costs. +Wolverine Boston Group +The Boston Group’s revenue increase d $ 15.4 million , or 1.7% , in fiscal 2019 compared to fiscal 2018 . The increase was driven by a mid-single digit increase for Sperry ® and a low-teens increase from Keds ® , partially offset by a mid-single digit decline for Saucony ® . The Sperry ® increase was due to strong low-twenties eCommerce growth and new retail store openings, partially offset by a low-single digit decline in the U.S. wholesale market due to a decline in the Boat shoe category partially offset by increases in the Boot category. The Keds ® increase was due to growth in the U.S. wholesale business and strong eCommerce growth in the thirties. The decrease for Saucony ® was due to lower demand for products in the U.S. wholesale channel and in certain international third-party markets, partially offset by the acquisition of the Saucony ® distributor in Italy and strong thirties eCommerce growth. +The Boston Group’s operating profit decrease d $ 3.7 million , or 2.3 %, in fiscal 2019 compared to fiscal 2018 . The decrease was due to higher selling, general and administrative expense of $13.5 million due to the acquisition of the Saucony ® distributor in +27 +Table of Contents +Italy, new Sperry ® stores and higher distribution and advertising costs related to eCommerce, partially offset by the group’s higher revenue and gross margin improvement of 40 basis points. +The Boston Group’s revenue decreased $93.3 million, or 9.4%, in fiscal 2018 compared to fiscal 2017. The decrease was driven by the transition of the Stride Rite ® brand to a licensing model ($47.5 million) and the closure of retail stores ($47.5 million) and a high-single digit decline for Saucony ® . This was partially offset by a low-single digit increase for Sperry ® wholesale and eCommerce channels and a mid-single digit increase for Keds ® due to eCommerce growth. The Saucony ® decrease was due to lower demand for products in the U.S. wholesale channel, partially offset by growth in Europe. +The Boston Group’s operating profit increased $3.9 million, or 2.5%, in fiscal 2018 compared to fiscal 2017. The increase was due to the closure of retail stores, higher operating profit for Keds ® due to the higher revenue and higher gross margin and higher operating profit for Sperry ® due to higher wholesale revenue. This was partially offset by lower operating profit from Saucony ® due to lower revenues. +Other +The Other category's revenue decrease d $ 8.4 million , or 11.7 %, in fiscal 2019 compared to fiscal 2018 . The revenue decrease is due to lower third-party sourcing commission revenue, a high-twenties decline in multi-brand retail stores revenue due to conversions to a mono-brand format and a low-single digit decline in the performance leathers business. +The Other category's revenue decreased $21.9 million, or 23.4%, in fiscal 2018 compared to fiscal 2017. The revenue decrease is due to a high-teens decline in the performance leathers business due to lower demand and the closure of multi-brand retail stores ($9.3 million). The Other category's operating profit decreased $2.1 million, or 40.4%, in fiscal 2018 compared to fiscal 2017, due to the performance leathers revenue decline. +Corporate +Corporate expenses increase d $ 64.2 million in fiscal 2019 compared to fiscal 2018 due to higher environmental and other related costs ($ 68.2 million ) and reorganization costs ($ 7.1 million ), partially offset by lower incentive compensation costs ($ 16.7 million ). +Corporate expenses decreased $204.6 million in fiscal 2018 compared to fiscal 2017. Corporate expenses were impacted by the decrease in restructuring and other related costs ($72.9 million), lower impairment of intangible assets ($68.6 million), lower organizational transformation costs ($37.7 million) and lower environmental and other related costs ($20.0 million). +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) +2019 +2018 +2017 +Cash and cash equivalents +$ +180.6 +$ +143.1 +$ +481.0 +Debt (1) +798.4 +570.5 +782.6 +Available Revolving Credit Facility (2) +434.3 +672.5 +597.5 +Net cash provided by operating activities +222.6 +97.5 +202.7 +Net cash used in investing activities +(61.5 +) +(22.2 +) +(1.0 +) +Net cash used in financing activities +(124.6 +) +(404.5 +) +(98.0 +) +Additions to property, plant and equipment +34.4 +21.7 +32.4 +Depreciation and amortization +32.7 +31.5 +37.2 +(1) +Prior to 2019, Debt included capital lease obligations. +(2) +Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Credit Facility. +Liquidity +Cash and cash equivalents of $ 180.6 million as of December 28, 2019 were $ 37.5 million higher compared to December 29, 2018 . The increase is due primarily to increased net borrowings under the Credit Agreement of $ 227.5 million and cash provided by operating activities of $ 222.6 million , partially offset by share repurchases of $ 319.2 million , capital expenditures of $ 34.4 million , cash dividends paid of $ 33.6 million , a business acquisition of $ 15.1 million , and investments in joint ventures of $ 8.5 million . The Company had $ 434.3 million of borrowing capacity available under the Revolving Credit Facility as of December 28, 2019 . Cash and cash equivalents located in foreign jurisdictions totaled $ 113.0 million as of December 28, 2019 . +28 +Table of Contents +Cash flow from operating activities, along with additional borrowings on the Revolving Credit Facility, if any, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends, repurchase the Company’s common stock and pursue acquisitions. +A detailed discussion of environmental remediation costs is found in Note 17 to our Consolidated Financial Statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts, including the Consent Decree approved on February 19, 2020 discussed in Note 17, with respect to each individual site. As of December 28, 2019 , the Company has a reserve of $ 124.4 million , of which $ 41.5 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 82.9 million recorded in other liabilities and expected to be paid over the course of up to 25 years. Separately, as result of a settlement with 3M Company, the Company will receive a $55.0 million payment from 3M Company in fiscal 2020 as a partial recovery of these costs. The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during fiscal 2019 was higher compared to fiscal 2018, due primarily to lower contributions to the Company's pension plans and increased collections of receivable accounts, offset partially by increased inventory investments during 2019 to support organic sales growth. During 2019, working capital drove a source of cash of $ 2.7 million , which was driven by a decrease in accounts receivable of $30.7 million and an increase in income taxes payable of $3.6 million , partially offset by increases in inventories of $23.8 million and other operating assets of $5.4 million and a decrease in other operating liabilities of $2.4 million . +Cash from operations during fiscal 2018 was lower compared to fiscal 2017, due primarily to the wind-down of an accounts receivable financing program, inventory investments at the end of 2018 to support organic sales growth and an increase in contributions to its pension plans. The Company made contributions to its pension plans of $60.7 million and $11.3 million in fiscal years 2018 and 2017 respectively. During 2018, working capital drove a use of cash of $137.9 million, which was driven by increases in accounts receivable of $95.0 million, inventories of $44.5 million and other operating assets of $17.8 million and a decrease in other operating liabilities of $19.3 million. These changes were partially offset by an increase in accounts payable of $40.6 million. +Investing Activities +The Company made capital expenditures of $ 34.4 million , $ 21.7 million and $ 32.4 million in fiscal years 2019 , 2018 and 2017 , respectively. The increase in capital expenditures during fiscal 2019 compared to fiscal 2018 were due to office enhancements and new retail stores. +During fiscal 2019, the Company paid $15.1 million related to a business acquisition and $8.5 million related to investments in joint ventures. See Note 19 to our Consolidated Financial Statements for additional information regarding the acquisition. During fiscal 2017, the Company received proceeds of $38.6 million related to the sale of a business and other assets. +Financing Activities +On December 6, 2018, the Company amended its credit agreement (as amended, the "Credit Agreement"). The Credit Agreement includes a $ 200.0 million term loan facility (“Term Loan A”) and a $ 800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met. Term Loan A requires quarterly principal payments with a balloon payment due on December 6, 2023. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $ 800.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $ 50.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company had outstanding borrowings under the Revolving Credit Facility of $ 360.0 +29 +Table of Contents +million and outstanding letters of credit under the Revolving Credit Facility of $ 5.7 million as of December 28, 2019 . The outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +As of December 28, 2019 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.00% with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company’s debt at December 28, 2019 totaled $ 798.4 million , compared to $ 570.5 million at December 29, 2018 . The increase was due to borrowings on the Revolving Credit Facility of $ 235.0 million less scheduled principal payments on Term Loan A of $ 7.5 million . +The Company has a foreign revolving credit facility with aggregate available borrowings of $ 4.0 million that are uncommitted and, therefore, each borrowing against the applicable facility is subject to approval by the lender. There were no borrowings against this facility at December 28, 2019 . +The Company repurchased $ 319.2 million , $ 174.7 million and $ 42.3 million of Company common stock in fiscal years 2019 , 2018 and 2017 , respectively, under stock repurchase plans. On September 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorized the repurchase of an additional $ 400.0 million of common stock over a four year period. The Company has $ 513.4 million available under its common stock repurchase program at December 28, 2019 . In addition to the stock repurchase program activity, the Company acquired $ 16.9 million , $ 8.8 million and $ 5.5 million of shares in fiscal years 2019 , 2018 and 2017 , respectively, in connection with shares or units withheld to pay employee taxes related to stock-based compensation plans. +The Company declared cash dividends of $ 0.40 per share, $ 0.32 per share, and $ 0.24 per share in fiscal years 2019 , 2018 and 2017 respectively. Dividends paid totaled $ 33.6 million , $ 28.6 million and $ 23.0 million , for fiscal years 2019 , 2018 and 2017 , respectively. A quarterly dividend of $0.10 per share was declared on February 5, 2020 to shareholders of record on April 1, 2020 . +NEW ACCOUNTING STANDARDS +See Note 2 to our Consolidated Financial Statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES +The preparation of the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s consolidated financial statements. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated fixed revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the purchase, shipment or delivery of branded products by or to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the +30 +Table of Contents +customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the fiscal year ended December 28, 2019 , related to the Company’s contract liabilities, was nominal. +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +Inventory +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries and certain domestic finished goods inventories. The average cost of inventory is used for finished goods inventories of the Company’s consumer-direct business. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company performs the second step of the goodwill impairment test to determine the impairment charge, if any. The second step involves a hypothetical allocation of the estimated fair value of the reporting unit to its net tangible and intangible assets (excluding goodwill) as if the reporting unit were newly acquired, which results in an implied fair value of the goodwill. The amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +31 +Table of Contents +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. The Company did not recognize any impairment charges for goodwill during fiscal years 2019 , 2018 and 2017 . No impairment charges were recognized for the Company's intangible assets during fiscal years 2019 and 2018. In the fourth quarter of fiscal 2017, as a result of its annual impairment testing, the Company recorded a $68.8 million impairment charge for the Sperry ® trade name. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. No impairment charges were recognized for the Company's long-lived assets during fiscal years 2019 and 2018. The Company recorded impairment charges of $12.2 million during fiscal 2017, related to certain retail store assets where the estimated future cash flows did not support the net book value of the assets. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is reasonably certain. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +Retirement Benefits +The determination of the obligation and expense for retirement benefits depends upon the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent fiscal year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans' expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 3.60 % at December 28, 2019 , compared to 4.46 % at December 29, 2018 . Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.75% for fiscal 2020. This rate is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its +32 +Table of Contents +consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the fiscal year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +As a result of the TCJA, the Company now intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore not established a deferred tax liability on that amount of foreign unremitted earnings. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +OFF-BALANCE SHEET ARRANGEMENTS +The Company has no off-balance sheet arrangements as of December 28, 2019 . +CONTRACTUAL OBLIGATIONS +As of December 28, 2019 , the Company had the following payments under contractual obligations due by period: +(In millions) +Total +Less than +1 year +1-3 years +3-5 years +More than +5 years +Long-term debt obligations (1) +$ +929.1 +$ +400.7 +$ +66.6 +$ +191.0 +$ +270.8 +Operating lease obligations +235.3 +34.1 +57.9 +38.2 +105.1 +Purchase obligations (2) +367.8 +367.8 +— +— +— +Supplemental Executive Retirement Plan +42.0 +3.7 +7.9 +8.3 +22.1 +Deferred compensation +1.8 +0.4 +0.8 +0.4 +0.2 +Dividends declared +9.0 +9.0 +— +— +— +Municipal water improvements (3) +69.5 +21.5 +39.3 +8.7 +— +TCJA transition obligation +27.9 +— +7.1 +20.8 +— +Minimum royalties +5.0 +1.5 +3.5 +— +— +Minimum advertising +17.0 +3.2 +6.7 +7.1 +— +Total (4) +$ +1,704.4 +$ +841.9 +$ +189.8 +$ +274.5 +$ +398.2 +(1) +Includes principal and interest payments on the Company’s long-term debt, net of the impact of interest rate swaps. Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 28, 2019 . Actual cash outflows may differ significantly due to changes in underlying interest rates. See Note 11 to our Consolidated Financial Statements for additional information on the Company's interest rate swaps. +(2) +Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) +Under the terms of the approved Consent Decree, the Company is obligated to contribute towards the costs of extending municipal water lines, developing a replacement wellfield and making certain improvements to Plainfield Township’s existing water treatment plant, all subject to an aggregate cap of $69.5 million. Due to the uncertainty of the timing and amounts related to the Company's other environmental remediation costs, they have been excluded from this table. See Note 17 to our Consolidated Financial Statements for additional information. +(4) +The total amount of unrecognized tax benefits on the consolidated balance sheet at December 28, 2019 is $ 6.9 million . At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +33 +Table of Contents +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. +Under the provisions of FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Colombia, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Colombian peso, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At December 28, 2019 and December 29, 2018 , the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $ 253.6 million and $ 225.1 million , respectively, with maturities ranging up to 545 days. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. At December 28, 2019 , a weaker U.S. dollar compared to certain foreign currencies, increased the value of these investments in net assets by $ 5.4 million from their value at December 29, 2018 . At December 29, 2018 , a stronger U.S. dollar compared to foreign currencies, decreased the value of these investments in net assets by $ 20.3 million from their value at December 30, 2017 . The Company has a cross currency swap, which has been designated as a hedge of a net investment in a foreign operation. The hedge had a notional amount of $ 79.8 million as of December 28, 2019 and will mature on September 1, 2021 . +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on borrowings used to finance acquisitions and working capital requirements. The Company’s total variable-rate debt was $ 552.5 million at December 28, 2019 and the Company held two interest rate swap agreements, denominated in U.S. dollars that effectively converted $ 355.8 million to fixed-rate debt. The interest rate swap derivative instruments are held and used by the Company as tools for managing interest rate risk. The counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be a net liability of $ 1.8 million at the end of fiscal 2019 . As of December 28, 2019 , the weighted-average interest rate on the Company’s variable-rate debt, net of the impact of the interest rate swap, was 3.08 %. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $ 2.0 million . +The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +34 +Table of Contents +Item 8. +Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +36 +Consolidated Statements of Comprehensive Income +37 +Consolidated Balance Sheets +38 +Consolidated Statements of Cash Flows +40 +Consolidated Statements of Stockholders' Equity +42 +Note 1. Summary of Significant Accounting Policies +44 +Note 2. New Accounting Standards +47 +Note 3. Earnings Per Share +47 +Note 4. Goodwill and Other Intangibles +48 +Note 5. Accounts Receivable +49 +Note 6. Revenue From Contracts With Customers +50 +Note 7. Inventories +51 +Note 8. Debt +51 +Note 9. Property, Plant and Equipment +53 +Note 10. Leases +53 +Note 11. Derivative Financial Instruments +54 +Note 12. Stock-Based Compensation +55 +Note 13. Retirement Plans +58 +Note 14. Income Taxes +61 +Note 15. Accumulated Other Comprehensive Income (Loss) +63 +Note 16. Fair Value Measurements +64 +Note 17. Litigation and Contingencies +65 +Note 18. Business Segments +67 +Note 19. Business Acquisition +69 +Note 20. Divestitures +70 +Note 21. Quarterly Results of Operations (Unaudited) +71 +Reports of Independent Registered Public Accounting Firm +72 +35 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) +2019 +2018 +2017 +Revenue +$ +2,273.7 +$ +2,239.2 +$ +2,350.0 +Cost of goods sold +1,349.9 +1,317.9 +1,426.6 +Restructuring costs +— +— +9.0 +Gross profit +923.8 +921.3 +914.4 +Selling, general and administrative expenses +669.3 +654.1 +706.0 +Restructuring and other related costs +— +— +72.9 +Impairment of intangible assets +— +— +68.6 +Environmental and other related costs +83.5 +15.3 +35.3 +Operating profit +171.0 +251.9 +31.6 +Other expenses: +Interest expense, net +30.0 +24.5 +32.1 +Debt extinguishment and other costs +— +0.6 +— +Other expense (income), net +( 4.9 +) +( 0.6 +) +10.1 +Total other expenses +25.1 +24.5 +42.2 +Earnings (loss) before income taxes +145.9 +227.4 +( 10.6 +) +Income tax expense (benefit) +17.0 +27.1 +( 9.9 +) +Net earnings (loss) +128.9 +200.3 +( 0.7 +) +Less: net earnings (loss) attributable to noncontrolling interests +0.4 +0.2 +( 1.0 +) +Net earnings attributable to Wolverine World Wide, Inc. +$ +128.5 +$ +200.1 +$ +0.3 +Net earnings per share (see Note 3): +Basic +$ +1.48 +$ +2.07 +$ +— +Diluted +$ +1.44 +$ +2.05 +$ +— +See accompanying notes to consolidated financial statements. +36 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income +Fiscal Year +(In millions) +2019 +2018 +2017 +Net earnings (loss) +$ +128.9 +$ +200.3 +$ +( 0.7 +) +Other comprehensive income (loss) net of tax: +Foreign currency translation adjustments +5.4 +( 20.5 +) +21.1 +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $0.2, $1.3 and $(7.0) +0.9 +14.4 +( 16.0 +) +Reclassification adjustments included in net earnings (loss), net of taxes of $(2.2), $1.3 and $(0.3) +( 7.6 +) +2.5 +( 0.7 +) +Pension adjustments: +Net actuarial loss arising during the period, net of taxes of $(3.9), $(2.6) and $(3.3) +( 14.6 +) +( 9.9 +) +( 6.0 +) +Amortization of prior actuarial losses, net of taxes of $0.5, $0.7 and $3.5 +2.1 +2.6 +6.3 +Curtailment gain arising during the period, net of taxes $0.8 in 2017 +— +— +1.5 +Settlement loss, net of taxes of $1.5 in 2018 +— +5.7 +— +Other comprehensive income (loss) +( 13.8 +) +( 5.2 +) +6.2 +Less: other comprehensive income (loss) attributable to noncontrolling interests +— +( 0.2 +) +0.3 +Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. +( 13.8 +) +( 5.0 +) +5.9 +Comprehensive income +115.1 +195.1 +5.5 +Less: comprehensive income (loss) attributable to noncontrolling interests +0.4 +— +( 0.7 +) +Comprehensive income attributable to Wolverine World Wide, Inc. +$ +114.7 +$ +195.1 +$ +6.2 +See accompanying notes to consolidated financial statements. +37 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) +December 28, +2019 +December 29, +2018 +ASSETS +Current assets: +Cash and cash equivalents +$ +180.6 +$ +143.1 +Accounts receivable, less allowances of $26.7 and $26.6 +331.2 +361.2 +Inventories: +Finished products, net +342.0 +301.4 +Raw materials and work-in-process, net +6.2 +16.2 +Total inventories +348.2 +317.6 +Prepaid expenses and other current assets +107.1 +45.8 +Total current assets +967.1 +867.7 +Property, plant and equipment: +Gross cost +325.0 +381.8 +Accumulated depreciation +( 184.0 +) +( 250.9 +) +Property, plant and equipment, net +141.0 +130.9 +Lease right-of-use assets +160.8 +— +Other assets: +Goodwill +438.9 +424.4 +Indefinite-lived intangibles +604.5 +604.5 +Amortizable intangibles, net +77.8 +71.9 +Deferred income taxes +2.9 +3.1 +Other +87.0 +80.6 +Total other assets +1,211.1 +1,184.5 +Total assets +$ +2,480.0 +$ +2,183.1 +See accompanying notes to consolidated financial statements. +38 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets – continued +(In millions, except share data) +December 28, +2019 +December 29, +2018 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ +202.1 +$ +202.3 +Accrued salaries and wages +20.8 +31.9 +Other accrued liabilities +157.9 +106.4 +Lease liabilities +34.1 +— +Current maturities of long-term debt +12.5 +7.5 +Borrowings under revolving credit agreements +360.0 +125.0 +Total current liabilities +787.4 +473.1 +Long-term debt, less current maturities +425.9 +438.0 +Accrued pension liabilities +109.7 +92.0 +Deferred income taxes +99.0 +107.9 +Lease liabilities, noncurrent +147.2 +— +Other liabilities +132.4 +80.5 +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity: +Common stock – par value $1, authorized 320,000,000 shares; 108,329,250 and 107,609,206 shares issued +108.3 +107.6 +Additional paid-in capital +233.4 +201.4 +Retained earnings +1,263.3 +1,169.7 +Accumulated other comprehensive loss +( 102.1 +) +( 88.3 +) +Cost of shares in treasury; 27,181,512 and 15,905,681 shares +( 736.2 +) +( 404.4 +) +Total Wolverine World Wide, Inc. stockholders’ equity +766.7 +986.0 +Noncontrolling interest +11.7 +5.6 +Total stockholders’ equity +778.4 +991.6 +Total liabilities and stockholders’ equity +$ +2,480.0 +$ +2,183.1 +See accompanying notes to consolidated financial statements. +39 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow +Fiscal Year +(In millions) +2019 +2018 +2017 +OPERATING ACTIVITIES +Net earnings (loss) +$ +128.9 +$ +200.3 +$ +( 0.7 +) +Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: +Depreciation and amortization +32.7 +31.5 +37.2 +Deferred income taxes +( 9.0 +) +22.1 +( 75.8 +) +Stock-based compensation expense +24.5 +31.2 +25.4 +Pension contribution +— +( 60.7 +) +( 11.3 +) +Pension and SERP expense +5.6 +11.8 +14.9 +Debt extinguishment costs +— +0.6 +— +Restructuring and other related costs +— +— +81.9 +Cash payments related to restructuring costs +( 0.3 +) +( 5.1 +) +( 64.8 +) +Impairment of intangible assets +— +— +68.6 +Environmental and other related costs, net of cash payments +48.8 +( 6.1 +) +32.3 +Loss/(gain) on sale of a business and other assets +— +0.3 +( 7.0 +) +Other +( 11.3 +) +9.5 +( 11.3 +) +Changes in operating assets and liabilities: +Accounts receivable +30.7 +( 95.0 +) +( 2.7 +) +Inventories +( 23.8 +) +( 44.5 +) +45.4 +Other operating assets +( 5.4 +) +( 17.8 +) +0.3 +Accounts payable +— +40.6 +11.2 +Income taxes +3.6 +( 1.9 +) +46.1 +Other operating liabilities +( 2.4 +) +( 19.3 +) +13.0 +Net cash provided by operating activities +222.6 +97.5 +202.7 +INVESTING ACTIVITIES +Business acquisition, net of cash acquired +( 15.1 +) +— +— +Additions to property, plant and equipment +( 34.4 +) +( 21.7 +) +( 32.4 +) +Proceeds from sale of a business and other assets +— +2.2 +38.6 +Investment in joint ventures +( 8.5 +) +— +( 2.1 +) +Other +( 3.5 +) +( 2.7 +) +( 5.1 +) +Net cash used in investing activities +( 61.5 +) +( 22.2 +) +( 1.0 +) +FINANCING ACTIVITIES +Net borrowings (payments) under revolving credit agreements +235.0 +124.5 +( 2.6 +) +Borrowings of long-term debt +— +200.0 +— +Payments on long-term debt +( 7.5 +) +( 538.2 +) +( 37.5 +) +Payments of debt issuance and debt extinguishment costs +( 0.3 +) +( 2.7 +) +( 0.1 +) +Cash dividends paid +( 33.6 +) +( 28.6 +) +( 23.0 +) +Purchase of common stock for treasury +( 319.2 +) +( 174.7 +) +( 51.5 +) +Employee taxes paid under stock-based compensation plans +( 16.9 +) +( 8.8 +) +( 5.5 +) +Proceeds from the exercise of stock options +12.2 +24.0 +21.4 +Contributions from noncontrolling interests +5.7 +— +0.8 +Net cash used in financing activities +( 124.6 +) +( 404.5 +) +( 98.0 +) +Effect of foreign exchange rate changes +1.0 +( 8.7 +) +7.5 +Increase (decrease) in cash and cash equivalents +37.5 +( 337.9 +) +111.2 +Cash and cash equivalents at beginning of the year +143.1 +481.0 +369.8 +Cash and cash equivalents at end of the year +$ +180.6 +$ +143.1 +$ +481.0 +See accompanying notes to consolidated financial statements. +40 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flow – continued +Fiscal Year +(In millions) +2019 +2018 +2017 +OTHER CASH FLOW INFORMATION +Interest paid +$ +32.4 +$ +29.0 +$ +31.5 +Net income taxes paid +23.2 +17.4 +23.6 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid +0.8 +1.3 +0.8 +Business acquisition not yet paid +5.5 +— +— +See accompanying notes to consolidated financial statements. +41 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at December 31, 2016 +$ +105.6 +$ +103.2 +$ +1,015.1 +$ +( 81.1 +) +$ +( 176.3 +) +$ +7.6 +$ +974.1 +Net earnings (loss) +0.3 +( 1.0 +) +( 0.7 +) +Other comprehensive income +5.9 +0.3 +6.2 +Shares forfeited, net of shares issued under stock incentive plans (488,655 shares) +( 0.5 +) +0.3 +( 0.2 +) +Shares issued for stock options exercised, net (1,247,064 shares) +1.3 +20.1 +21.4 +Stock-based compensation expense +25.4 +25.4 +Cash dividends declared ($0.24 per share) +( 23.2 +) +( 23.2 +) +Issuance of treasury shares (44,480 shares) +0.2 +0.9 +1.1 +Purchase of common stock for treasury (1,639,732 shares) +( 42.3 +) +( 42.3 +) +Purchases of shares under stock-based compensation plans (227,464 shares) +( 5.3 +) +( 5.3 +) +Capital contribution from noncontrolling interests +0.8 +0.8 +Incremental investment in joint venture +( 2.1 +) +( 2.1 +) +Balance at December 30, 2017 +$ +106.4 +$ +149.2 +$ +992.2 +$ +( 75.2 +) +$ +( 223.0 +) +$ +5.6 +$ +955.2 +Net earnings +200.1 +0.2 +200.3 +Other comprehensive loss +( 5.0 +) +( 0.2 +) +( 5.2 +) +Shares forfeited, net of shares issued under stock incentive plans (154,084 shares) +( 0.2 +) +( 1.7 +) +( 1.9 +) +Shares issued for stock options exercised, net (1,357,841 shares) +1.4 +22.6 +24.0 +Stock-based compensation expense +31.2 +31.2 +Cash dividends declared ($0.32 per share) +( 30.7 +) +( 30.7 +) +Issuance of treasury shares (7,761 shares) +0.1 +0.2 +0.3 +Purchase of common stock for treasury (5,349,262 shares) +( 174.7 +) +( 174.7 +) +Purchases of shares under stock-based compensation plans (219,039 shares) +( 6.9 +) +( 6.9 +) +Change in accounting principle +8.1 +( 8.1 +) +— +Balance at December 29, 2018 +$ +107.6 +$ +201.4 +$ +1,169.7 +$ +( 88.3 +) +$ +( 404.4 +) +$ +5.6 +$ +991.6 +See accompanying notes to consolidated financial statements. +42 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) +Common Stock +Additional Paid-In Capital +Retained Earnings +Accumulated +Other +Comprehensive +Loss +Treasury Stock +Non-controlling Interest +Total +Balance at December 29, 2018 +$ +107.6 +$ +201.4 +$ +1,169.7 +$ +( 88.3 +) +$ +( 404.4 +) +$ +5.6 +$ +991.6 +Net earnings +128.5 +0.4 +128.9 +Other comprehensive income (loss) +( 13.8 +) +— +( 13.8 +) +Shares issued, net of shares forfeited under stock incentive plans (38,655 shares) +0.1 +( 4.2 +) +( 4.1 +) +Shares issued for stock options exercised, net (681,389 shares) +0.6 +11.6 +12.2 +Stock-based compensation expense +24.5 +24.5 +Cash dividends declared ($0.40 per share) +( 34.9 +) +( 34.9 +) +Issuance of treasury shares (7,460 shares) +0.1 +0.2 +0.3 +Purchase of common stock for treasury (10,914,965 shares) +( 319.2 +) +( 319.2 +) +Purchases of shares under stock-based compensation plans (368,326 shares) +( 12.8 +) +( 12.8 +) +Capital contribution from noncontrolling interests +5.7 +5.7 +Balance at December 28, 2019 +$ +108.3 +$ +233.4 +$ +1,263.3 +$ +( 102.1 +) +$ +( 736.2 +) +$ +11.7 +$ +778.4 +See accompanying notes to consolidated financial statements. +43 +Table of Contents +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years 2019 , 2018 and 2017 +1. +SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids' footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® and Wolverine ® . Licensing and distribution arrangements with third parties extend the global reach of the Company’s brand portfolio. The Company also operates a consumer-direct division to market both its own brands and branded footwear and apparel from other manufacturers, as well as a leathers division that markets Wolverine Performance Leathers™ . +Principles of Consolidation and Basis of Presentation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +During the first quarter of 2019, the brands that were formerly aligned with the Wolverine Outdoor & Lifestyle Group and Wolverine Heritage Group were realigned into a new operating segment, the Wolverine Michigan Group. All prior period disclosures have been retrospectively adjusted to reflect these new reportable operating segments. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2019 , 2018 and 2017 all had 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +The Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers . Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations and recognizes revenue upon completion of the performance obligation. +Control of the Company's goods and services, and associated fixed revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products by or to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The shipment of goods, or point of purchase for retail store sales, was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. +Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the goods transfers to the customer as fulfillment activities. +Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract liabilities) on the consolidated balance sheets. Generally, billing occurs subsequent to revenue recognition resulting in contract assets. See Note 6 for additional information. +44 +Table of Contents +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 119.4 million , $ 120.8 million and $ 107.1 million for fiscal years 2019 , 2018 and 2017 , respectively. Prepaid advertising totaled $ 3.7 million and $ 1.5 million as of December 28, 2019 and December 29, 2018 , respectively. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates market. +Allowance for Uncollectible Accounts +The Company maintains an allowance for uncollectible accounts receivable for estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for uncollectible accounts receivable based on a review of current customer status and historical collection experience. +Inventories +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries and certain domestic finished goods inventories. The average cost of inventory is used for finished goods inventories of the Company’s consumer-direct business. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for buildings, leasehold improvements, furniture and fixtures, material handling systems, equipment and computer hardware and software. Normal repairs and maintenance are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings, from 5 to 15 years for leasehold improvements, from 3 to 10 years for furniture, fixtures and equipment and from 3 to 5 years for software. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, +45 +Table of Contents +to determine if such assets may be impaired. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management performs the next step, which compares the fair value of the reporting unit to the carrying value of the tangible and intangible net assets of the reporting units. Goodwill is considered impaired if the recorded value of the tangible and intangible net assets exceeds the fair value of the reporting unit. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. The Company may skip the qualitative assessment and quantitatively test indefinite-lived intangibles by comparison of the individual carrying values to the fair values. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year. See Note 4 for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is reasonably certain. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 13 for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average +46 +Table of Contents +exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2019 , 2018 and 2017 . +2. +NEW ACCOUNTING STANDARDS +The Financial Accounting Standards Board (“FASB”) issued the following ASUs that have been adopted by the Company during fiscal 2019 . The following is a summary of the effect of adoption of these new standards. +Standard +Description +Effect on the Financial Statements or Other Significant Matters +ASU 2016-02, Leases (as amended by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01) +The core principle is that a lessee shall recognize a lease liability in its statement of financial position for the present value of all future lease payments. A lessee would also recognize a right-of-use asset representing its right to use the underlying asset for the lease term. Under a new transition method, a reporting entity will apply the new lease requirements as of the effective date and continue to report comparative periods presented in the financial statements under GAAP in effect during the comparable periods. +The Company adopted ASU 2016-02 at the beginning of the first quarter using the modified retrospective approach and elected the package of practical expedients for its existing leases. The Company recognized a lease liability of $178.1 million, which was equal to the present value of the future lease payments for its portfolio of operating leases. The Company recognized a right-of-use asset of $157.3 million, which was equal to the lease liabilities adjusted for the balance of accrued rent and unamortized lease incentives as of the effective date. The adoption of ASU 2016-02 did not have a material impact on the Company’s results of operations or cash flows. See Note 10 for additional information on the adoption of this standard and disclosures regarding the Company’s leases. +The FASB has issued the following ASUs that have not yet been adopted by the Company. The following is a summary of the planned adoption period and anticipated impact of adopting these new standards. +Standard +Description +Planned Period of Adoption +Effect on the Financial Statements or Other Significant Matters +ASU 2016-13, Measurement of Credit Losses on Financial Instruments (as amended by ASU 2018-19) +Seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. +Q1 2020 +The Company is evaluating the impacts of the new standard on its existing financial instruments, including trade receivables. +3. +EARNINGS PER SHARE +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +47 +Table of Contents +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) +2019 +2018 +2017 +Numerator: +Net earnings attributable to Wolverine World Wide, Inc. +$ +128.5 +$ +200.1 +$ +0.3 +Less: net earnings attributed to participating share-based awards +( 2.6 +) +( 7.5 +) +— +Net earnings used to calculate basic earnings per share +125.9 +192.6 +0.3 +Adjustment for earnings (loss) reallocated to participating share-based awards +0.1 +1.8 +( 0.2 +) +Net earnings used to calculate diluted earnings per share +$ +126.0 +$ +194.4 +$ +0.1 +Denominator: +Weighted average shares outstanding +85.7 +94.8 +96.4 +Adjustment for unvested restricted common stock +( 0.6 +) +( 1.8 +) +( 2.7 +) +Shares used to calculate basic earnings per share +85.1 +93.0 +93.7 +Effect of dilutive share-based awards +2.1 +2.0 +1.7 +Shares used to calculate diluted earnings per share +87.2 +95.0 +95.4 +Net earnings per share: +Basic +$ +1.48 +$ +2.07 +$ +— +Diluted +$ +1.44 +$ +2.05 +$ +— +For fiscal years 2019 , 2018 and 2017 , 133,505 , 25,230 and 1,753,869 outstanding stock options, respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 28, 2019 or December 29, 2018 . The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company repurchased $ 319.2 million , $ 174.7 million and $ 42.3 million of Company common stock in fiscal years 2019 , 2018 and 2017 , respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 16.9 million , $ 8.8 million and $ 5.5 million of shares in fiscal years 2019 , 2018 and 2017 , respectively, in connection with employee transactions related to stock incentive plans. +On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to amounts remaining under the previous repurchase program. The annual amount of stock repurchases is restricted under the terms of the Company's Credit Agreement. +4. +GOODWILL AND OTHER INTANGIBLE ASSETS +The changes in the carrying amount of goodwill are as follows: +Fiscal Year +(In millions) +2019 +2018 +Goodwill balance at beginning of the year +$ +424.4 +$ +429.8 +Acquisition of a business (see Note 19) +12.0 +— +Foreign currency translation effects +2.5 +( 5.4 +) +Goodwill balance at end of the year +$ +438.9 +$ +424.4 +The Company did not recognize any impairment charges during fiscal years 2019 , 2018 and 2017 for goodwill. The annual impairment testing indicated, for all reporting units tested quantitatively, that their fair values exceeded their respective carrying values. For the reporting units that the Company elected to test qualitatively, as is permitted under ASU 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment , the Company concluded it to be more likely than not that their estimated fair values are greater than their respective carrying values. +48 +Table of Contents +The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 604.5 million as of December 28, 2019 and December 29, 2018 . No impairment charges were recognized for the Company's intangible assets during fiscal years 2019 and 2018 . In the fourth quarter of fiscal 2017, as a result of its annual impairment testing, the Company recognized a $ 68.6 million impairment charge for the Sperry ® trade name. The risk of future impairment for the Sperry ® trade name is dependent on key assumptions used in the determination of the trade name's fair value, such as revenue growth, operating profit and the discount rate. The carrying value of the Company’s Sperry ® trade name indefinite-lived intangible asset was $ 518.2 as of December 28, 2019 . +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows: +December 28, 2019 +(In millions) +Gross carrying +value +Accumulated +amortization +Net +Average remaining life (years) +Customer relationships +$ +113.3 +$ +38.8 +$ +74.5 +13 +Other +17.3 +14.0 +3.3 +3 +Total +$ +130.6 +$ +52.8 +$ +77.8 +December 29, 2018 +(In millions) +Gross carrying +value +Accumulated +amortization +Net +Average remaining life (years) +Customer relationships +$ +100.5 +$ +31.7 +$ +68.8 +14 +Other +14.6 +11.5 +3.1 +3 +Total +$ +115.1 +$ +43.2 +$ +71.9 +Amortization expense for these amortizable intangible assets was $ 8.6 million , $ 6.2 million and $ 9.4 million for fiscal years 2019 , 2018 and 2017 , respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 28, 2019 is as follows: +(In millions) +2020 +2021 +2022 +2023 +2024 +Amortization expense +$ +6.9 +$ +6.6 +$ +6.4 +$ +6.1 +$ +5.9 +5. +ACCOUNTS RECEIVABLE +The Company has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis that expires in the fourth quarter of fiscal 2020. Under the agreement, up to $ 150.0 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheet, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability for all periods presented. For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. The following is a summary of the stated amount of accounts receivable that was sold as well as fees charged by the financial institution. +Fiscal Year +(In millions) +2019 +2018 +2017 +Accounts receivable sold +$ +42.7 +$ +264.3 +$ +558.3 +Fees charged +0.2 +1.3 +2.1 +The fees are recorded in the other expense (income), net line item on the consolidated statements of operations. Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows. This program reduced the Company's accounts receivable by $ 33.9 million and $ 0 as of December 28, 2019 and December 29, 2018 , respectively. +49 +Table of Contents +6. +REVENUE FROM CONTRACTS WITH CUSTOMERS +The Company provides disaggregated revenue for the wholesale and consumer-direct sales channels, which are reconciled to the Company’s reportable operating segments. The wholesale channel includes royalty revenues, which operates in a similar manner due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation. +Fiscal Year +(in millions) +2019 +2018 +2017 +Wolverine Michigan Group: +Wholesale +$ +1,134.9 +$ +1,129.2 +$ +1,144.3 +Consumer-direct +164.8 +143.0 +123.5 +Total +1,299.7 +1,272.2 +1,267.8 +Wolverine Boston Group: +Wholesale +743.4 +762.0 +814.5 +Consumer-direct +167.5 +133.5 +174.3 +Total +910.9 +895.5 +988.8 +Other: +Wholesale +57.9 +64.1 +74.3 +Consumer-direct +5.2 +7.4 +19.1 +Total +63.1 +71.5 +93.4 +Total revenue +$ +2,273.7 +$ +2,239.2 +$ +2,350.0 +The Company has agreements to license symbolic intellectual property with minimum guarantees and/or fixed consideration. Revenue is recognized under these contracts over the contractual term as the Company believes time is the appropriate measure of progress and best represents a faithful depiction of the transfer of goods under the contract. The Company is due $ 33.6 million of remaining fixed consideration under these license agreements as of December 28, 2019 , which will be recognized over the remaining term of the contracts, which expire at various dates through 2024 . +Reserves for Variable Consideration +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, the revenue recognized by the Company, net of these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during fiscal years 2019 and 2018 , related to the Company’s contract liabilities, was nominal. +The Company’s contract balances are as follows: +(In millions) +December 28, +2019 +December 29, +2018 +Product returns reserve +$ +11.4 +$ +13.6 +Customer markdowns reserve +4.4 +4.0 +Other sales incentives reserve +2.3 +2.3 +Customer rebates liability +12.0 +12.8 +Customer advances liability +7.2 +3.8 +The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from initial estimates. If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. +50 +Table of Contents +Product Returns +Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and a reduction to trade receivables, net on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. +Customer Markdowns +Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. +Other Sales Incentives +The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. +Customer Rebates +The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. +Customer Advances +The Company recognizes a liability for amounts received from customers before revenue is recognized. Customer advances are recognized as a current liability on the consolidated balance sheets. +7. +INVENTORIES +The Company used the LIFO method to value inventories of $ 81.2 million and $ 61.1 million at December 28, 2019 and December 29, 2018 , respectively. During fiscal years 2019 and 2018, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior years. This LIFO liquidation decreased cost of goods sold by $ 0.4 million and $ 4.6 million , respectively. If the FIFO method had been used, inventories would have been $ 11.4 million and $ 11.8 million higher than reported at December 28, 2019 and December 29, 2018 , respectively. +8. +DEBT +Total debt consists of the following obligations: +(In millions) +December 28, +2019 +December 29, +2018 +Term Loan A, due December 6, 2023 +$ +192.5 +$ +200.0 +Senior Notes, 5.000% interest, due September 1, 2026 +250.0 +250.0 +Borrowings under revolving credit agreements +360.0 +125.0 +Capital lease obligation +— +0.4 +Unamortized deferred financing costs +( 4.1 +) +( 4.9 +) +Total debt +$ +798.4 +$ +570.5 +On December 6, 2018, the Company amended its credit agreement (as amended, the "Credit Agreement"). The Credit Agreement includes a $ 200.0 million term loan facility (“Term Loan A”) and an $ 800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023. The Credit Agreement’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million , unless certain specified conditions set forth in the Credit Agreement are met. Term Loan A requires quarterly principal payments with a balloon payment due on December 6, 2023. The scheduled principal payments due over the next 12 months total $ 12.5 million as of December 28, 2019 and are recorded as current maturities of long-term debt on the consolidated balance sheets. +51 +Table of Contents +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $ 800.0 million , which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $ 50.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company also had outstanding letters of credit under the Revolving Credit Facility of $ 5.7 million and $ 2.5 million as of December 28, 2019 and December 29, 2018 , respectively. These outstanding borrowings and letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +The interest rates applicable to amounts outstanding under Term Loan A and to U.S. dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125 % to 0.750 % , or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125 % to 1.750 % (all capitalized terms used in this sentence are as defined in the Credit Agreement). The Company has interest rate swap arrangements that reduce the Company’s exposure to fluctuations in interest rates on its variable rate debt. At December 28, 2019 , Term Loan A and the Revolving Credit Facility had weighted-average interest rates of 3.13 % and 3.05 % , respectively. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Credit Agreement also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Credit Agreement requires compliance with the following financial covenants: a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Credit Agreement). As of December 28, 2019 , the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026 (the “Senior Notes”). The Senior Notes bear interest at 5.00 % with the related interest payments due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company has a foreign revolving credit facility with aggregate available borrowings of $ 4.0 million that are uncommitted and, therefore, each borrowing against the facility is subject to approval by the lender. As of December 28, 2019 and December 29, 2018 there were no borrowings against this credit facility. +Prior to fiscal 2019, the Company had a capital lease obligation. As a result of the adoption of ASU 2016-02, Leases , the capital lease is now classified as a financing lease and is no longer included in long term debt. +The Company included in interest expense the amortization of deferred financing costs of $ 1.6 million , $ 2.8 million , and $ 2.8 million in fiscal years 2019 , 2018 and 2017 , respectively. +Annual maturities of debt, including capital leases, for the fiscal years subsequent to December 28, 2019 are as follows: +(In millions) +2020 +2021 +2022 +2023 +2024 +Thereafter +Annual maturities of debt +$ +372.5 +$ +10.0 +$ +10.0 +$ +160.0 +$ +— +$ +250.0 +52 +Table of Contents +9. +PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) +December 28, 2019 +December 29, 2018 +Land +$ +3.9 +$ +3.9 +Buildings and leasehold improvements +123.2 +108.8 +Furniture, fixtures and equipment +136.8 +162.5 +Software +61.1 +106.6 +Gross cost +325.0 +381.8 +Less: accumulated depreciation +184.0 +250.9 +Property, plant and equipment, net +$ +141.0 +$ +130.9 +Depreciation expense was $ 24.1 million , $ 25.3 million and $ 27.8 million for fiscal years 2019 , 2018 and 2017 , respectively. +10. LEASES +The Company adopted ASU 2016-02, Leases , at the beginning of the first quarter of fiscal 2019 using the modified retrospective approach applied to all leases as of the date of application. The Company elected the package of practical expedients for leases existing as of the effective date under which it did not reassess whether contracts contain leases under the new definition of a lease, the lease classification or whether previously capitalized initial direct costs would qualify for capitalization under ASU 2016-02. In addition, the Company did not elect the hindsight practical expedient for considering judgments and estimates relating to its existing leases such as determining the remaining lease term. +Description of Leases +The Company’s leases consist primarily of corporate offices, retail stores, distribution centers, showrooms, vehicles and office equipment. The Company leases assets in the normal course of business to meet its current and future needs while providing flexibility to its operations. The Company enters into contracts with third parties to lease specifically identified assets. Most of the Company’s leases have contractually specified renewal periods. Most retail store leases have early termination clauses that the Company can elect if stipulated sales amounts are not achieved. The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised. +Accounting for Leases +Under FASB ASC Topic 842, Leases , the Company has elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all of its leases. In addition, the Company has elected to account for multiple lease components as a single lease component. The Company’s leases may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease. The Company recognizes variable lease payments when the amounts are incurred and determinable. The Company has elected to account for leases of less than one year as short-term leases and accordingly does not recognize a right-of-use asset or lease liability for these leases. The Company recognizes rent expense on a straight-line basis over the lease term. +The Company subleases certain portions of leased offices and distribution centers that exceed the Company’s current operational needs. Since the Company utilizes the majority of the leased space and retains the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the term of the sublease, and beginning in fiscal 2019, is recognized in other expense (income), net on the consolidated statements of operations. +The Company recognizes a lease liability in current and noncurrent liabilities equal to the present value of the fixed future lease payments using an incremental borrowing rate as of the commencement date of each lease. The incremental borrowing rate is based on interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments. The weighted-average discount rate for operating leases as of December 28, 2019 is 5.2 %. The Company also recognizes a right-of-use asset, which is equal to the lease liability as of December 28, 2019 adjusted for the remaining balance of accrued rent and unamortized lease incentives. +53 +Table of Contents +The following is a summary of the Company’s lease cost. +Fiscal Year +(In millions) +2019 +Operating lease cost +$ +32.6 +Variable lease cost +14.5 +Short-term lease cost +1.2 +Sublease income +( 4.0 +) +Total lease cost +$ +44.3 +The weighted-average remaining lease term for operating leases as of December 28, 2019 is 10.1 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 28, 2019 are as follows: +(In millions) +Operating Leases +2020 +$ +34.1 +2021 +30.3 +2022 +27.6 +2023 +20.5 +2024 +17.7 +Thereafter +105.1 +Total future payments +235.3 +Less: imputed interest +54.0 +Recognized lease liability +$ +181.3 +The Company made cash payments of $ 33.2 million for operating lease liabilities during fiscal 2019 . During fiscal 2019 , the Company entered into new or amended leases that resulted in the noncash recognition of right-of-use assets and lease liabilities of $ 26.8 million . In addition, the Company entered into real estate leases which will commence subsequent to December 28, 2019 with future undiscounted rental payments of $ 4.8 million . The Company has a financing lease with future payments of $ 0.3 million and a remaining term of 2.1 years. +Rental expense under all operating leases, under the previous lease standard ASC 840 and consisting primarily of minimum rentals, totaled $ 32.0 million and $ 39.9 million in fiscal years 2018 and 2017, respectively. The Company recognized sublease income of $ 2.8 million and $ 1.9 million in fiscal years 2018 and 2017, respectively. +11. +DERIVATIVE FINANCIAL INSTRUMENTS +The Company follows ASC 815, which requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. +The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extended out to a maximum of 545 days and 524 days as of December 28, 2019 and December 29, 2018 , respectively. When foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) (“AOCI”) within stockholders’ equity. During fiscal 2019, the Company reclassified $ 1.2 million to other income for foreign currency derivatives that were no longer deemed highly effective. +The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has two interest rate swap arrangements, which unless otherwise terminated, will mature on July 13, 2020 and December 6, 2023 , respectively. These agreements, which exchange floating rate for fixed rate interest payments over the life of the agreements without the exchange of the underlying notional amounts, have been designated as cash flow hedges of the underlying debt. The notional amounts of the interest rate swap arrangements are used to measure interest to be paid or received and do not +54 +Table of Contents +represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap arrangements is recognized as interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swaps and the variable rate borrowing, as well as its risk management objective and strategy for undertaking the hedge transactions. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the inception of each hedge, and continues to assess on an ongoing basis, whether the derivatives used in the hedging transactions are highly effective in offsetting changes in the cash flows of the hedged item. +The Company has a cross currency swap to minimize the impact of exchange rate fluctuations. The hedging instrument, which, unless otherwise terminated, will mature on September 1, 2021 , has been designated as a hedge of a net investment in a foreign operation. The Company will pay 2.75 % on the euro-denominated notional amount and receive 5.00 % on the U.S. dollar notional amount, with an exchange of principal at maturity. Changes in fair value related to movements in the foreign currency exchange spot rate are recorded in AOCI, offsetting the currency translation adjustment related to the underlying net investment that is also recorded in AOCI. All other changes in fair value are recorded in interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the cross-currency swap and the Company’s investment in its euro-denominated subsidiary, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to its net investment on the balance sheet. The Company also assessed at the hedge’s inception, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the net investment in the foreign operations. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) +December 28, 2019 +December 29, 2018 +Foreign exchange contracts: +Hedge contracts +$ +246.3 +$ +220.3 +Non-hedge contracts +7.3 +4.8 +Interest rate swap +355.8 +181.3 +Cross currency swap +79.8 +95.8 +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) +December 28, 2019 +December 29, 2018 +Financial assets: +Foreign exchange contracts - hedge +$ +2.3 +$ +8.7 +Interest rate swap +— +1.6 +Financial liabilities: +Foreign exchange contracts - hedge +$ +( 1.8 +) +$ +— +Interest rate swap +( 1.8 +) +— +Cross currency swap +( 3.0 +) +( 8.2 +) +12. +STOCK-BASED COMPENSATION +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company recognized compensation expense of $ 24.5 million , $ 31.2 million and $ 25.4 million and related income tax benefits of $ 4.8 million , $ 6.4 million and $ 8.6 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2019 , 2018 and 2017 , respectively. The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. +As of December 28, 2019 , the Company had 5,669,643 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment. +55 +Table of Contents +These restrictions typically lapse over a three- to four-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement, death and disability, and upon a change in control of the Company. Awards issued to employees that meet the specified retirement age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +Restricted Awards and Performance Awards +A summary of the unvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards +Weighted- +Average +Grant Date +Fair Value +Performance +Awards +Weighted- +Average +Grant Date +Fair Value +Unvested at December 31, 2016 +1,947,378 +$ +21.24 +1,730,886 +$ +21.86 +Granted +762,078 +23.06 +511,722 +25.14 +Vested +( 445,939 +) +22.03 +( 173,894 +) +27.01 +Forfeited +( 238,445 +) +21.66 +( 378,046 +) +25.04 +Unvested at December 30, 2017 +2,025,072 +$ +21.70 +1,690,668 +$ +21.54 +Granted +609,276 +31.81 +384,657 +35.10 +Vested +( 560,263 +) +22.93 +( 229,023 +) +26.64 +Forfeited +( 153,712 +) +23.81 +( 215,284 +) +26.18 +Unvested at December 29, 2018 +1,920,373 +$ +24.38 +1,631,018 +$ +23.42 +Granted +554,092 +34.73 +370,830 +37.10 +Vested +( 681,938 +) +24.63 +( 654,021 +) +17.46 +Forfeited +( 173,611 +) +28.47 +( 220,725 +) +19.74 +Unvested at December 28, 2019 +1,618,916 +$ +27.36 +1,127,102 +$ +31.94 +As of December 28, 2019 , there was $ 19.9 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Awards vested during the year ended December 28, 2019 was $ 23.7 million . As of December 29, 2018 , there was $ 20.2 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended December 29, 2018 was $ 17.4 million . As of December 30, 2017 , there was $ 18.3 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.8 years. The total fair value of Restricted Awards vested during the year ended December 30, 2017 was $ 10.6 million . +As of December 28, 2019 , there was $ 4.5 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.1 years. The total fair value of Performance Awards vested during the year ended December 28, 2019 was $ 22.8 million . As of December 29, 2018 , there was $ 19.0 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.7 years. The total fair value of Performance Awards vested during the year ended December 29, 2018 was $ 7.3 million . As of December 30, 2017 , there was $ 16.9 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.9 years. The total fair value of Performance Awards vested during the year ended December 30, 2017 was $ 4.0 million . +56 +Table of Contents +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $ 9.07 , $ 8.20 and $ 5.50 per share for fiscal years 2019 , 2018 and 2017 , respectively, with the following weighted-average assumptions. +Fiscal Year +2019 +2018 +2017 +Expected market price volatility (1) +29.6 +% +29.6 +% +29.3 +% +Risk-free interest rate (2) +2.5 +% +2.5 +% +1.7 +% +Dividend yield (3) +1.0 +% +0.8 +% +1.0 +% +Expected term (4) +4 years +4 years +4 years +(1) +Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant. +(2) +Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant . +(3) +Represents the Company’s estimated cash dividend yield for the expected term. +(4) +Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior. +A summary of the stock option transactions is as follows: +Shares Under Option +Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at December 31, 2016 +7,493,662 +$ +19.55 +6.4 +$ +28.7 +Granted +93,274 +23.85 +Exercised +( 1,267,269 +) +17.15 +Canceled +( 230,003 +) +21.37 +Outstanding at December 30, 2017 +6,089,664 +$ +20.05 +5.8 +$ +72.1 +Granted +28,171 +31.85 +Exercised +( 1,359,387 +) +17.69 +Canceled +( 56,446 +) +17.12 +Outstanding at December 29, 2018 +4,702,002 +$ +20.83 +5.2 +$ +54.5 +Granted +25,471 +34.81 +Exercised +( 681,389 +) +17.87 +Canceled +( 12,977 +) +23.97 +Outstanding at December 28, 2019 +4,033,107 +$ +21.41 +4.4 +$ +49.8 +Unvested at December 28, 2019 +( 44,250 +) +Exercisable at December 28, 2019 +3,988,857 +$ +21.27 +4.4 +$ +49.7 +The total pretax intrinsic value of stock options exercised during fiscal years 2019 , 2018 and 2017 was $ 10.7 million , $ 21.2 million and $ 12.5 million , respectively. As of December 28, 2019 , there was $ 0.2 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 1.4 years. As of December 29, 2018 and December 30, 2017 , there was $ 0.4 million and $ 1.8 million , respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 0.8 years and 1.0 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price of the Company's stock was above the strike price ("in-the-money"), as of that date. The total number of in-the-money options exercisable as of December 28, 2019 , based on the Company’s closing stock price of $ 33.74 per share, was 3,974,757 and the weighted-average exercise price was $ 21.29 per share. As of December 29, 2018 , 4,048,842 outstanding options were exercisable and in-the-money, with a weighted-average exercise price of $ 21.09 per share. +57 +Table of Contents +13. +RETIREMENT PLANS +The Company has two non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The second plan is closed to new participants and no longer accrue future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company following retirement, generally for the duration of their lives. The Company maintains life insurance policies with a cash surrender value of $ 66.8 million at December 28, 2019 and $ 64.4 million at December 29, 2018 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for discretionary Company contributions based on the amount of participant deferrals. The Company recognized expense for its contributions to the defined contribution plans of $ 5.2 million , $ 4.5 million and $ 4.2 million in fiscal years 2019 , 2018 and 2017 , respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.1 million , $ 1.1 million and $ 1.0 million in fiscal years 2019 , 2018 and 2017 , respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 0.9 million at December 28, 2019 and $ 1.1 million at December 29, 2018 and was recognized as a deferred compensation liability on the consolidated balance sheets. +58 +Table of Contents +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2019 and 2018 : +Fiscal Year +(In millions) +2019 +2018 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ +348.8 +$ +443.4 +Service cost pertaining to benefits earned during the year +5.5 +6.3 +Interest cost on projected benefit obligations +15.2 +16.5 +Actuarial loss (gain) +45.4 +( 31.6 +) +Benefits paid to plan participants +( 13.9 +) +( 19.2 +) +Settlement +— +( 66.6 +) +Projected benefit obligations at end of the year +$ +401.0 +$ +348.8 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ +254.4 +$ +299.6 +Actual return (loss) on plan assets +44.7 +( 22.6 +) +Company contributions - pension +— +60.7 +Company contributions - SERP +2.4 +2.5 +Benefits paid to plan participants +( 13.9 +) +( 19.2 +) +Settlement +— +( 66.6 +) +Fair value of pension assets at end of the year +$ +287.6 +$ +254.4 +Funded status +$ +( 113.4 +) +$ +( 94.4 +) +Amounts recognized in the consolidated balance sheets: +Noncurrent assets +$ +— +$ +1.4 +Current liabilities +( 3.7 +) +( 3.8 +) +Noncurrent liabilities +( 109.7 +) +( 92.0 +) +Net amount recognized +$ +( 113.4 +) +$ +( 94.4 +) +Funded status of pension plans and SERP (supplemental): +Funded status of qualified defined benefit plans and SERP +$ +( 113.4 +) +$ +( 94.4 +) +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations +59.6 +57.4 +Net funded status of pension plans and SERP (supplemental) +$ +( 53.8 +) +$ +( 37.0 +) +Unrecognized net actuarial loss recognized in AOCI was $ 61.4 million and $ 44.6 million , and amounts net of tax were $ 48.7 million and $ 36.2 million , as of December 28, 2019 and December 29, 2018 , respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 378.4 million at December 28, 2019 and $ 319.1 million at December 29, 2018 . The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during 2020 is $ 6.6 million . +59 +Table of Contents +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) +2019 +2018 +2017 +Service cost pertaining to benefits earned during the year +$ +5.5 +$ +6.3 +$ +7.2 +Interest cost on projected benefit obligations +15.2 +16.5 +17.7 +Expected return on pension assets +( 17.7 +) +( 21.5 +) +( 19.8 +) +Net amortization loss +2.6 +3.3 +9.8 +Settlement loss +— +7.2 +— +Net pension expense +$ +5.6 +$ +11.8 +$ +14.9 +Less: SERP expense +5.4 +5.5 +5.5 +Qualified defined benefit pension plans expense +$ +0.2 +$ +6.3 +$ +9.4 +During fiscal 2018, the Company completed a pension annuity purchase, which settled $ 66.6 million of projected benefit obligations. The Company recognized a settlement loss of $ 7.2 million due to the annuity purchase. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2019 +2018 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +3.60 % +4.46 % +Rate of compensation increase - pension +4.23 % +3.82 % +Rate of compensation increase - SERP +7.00 % +7.00 % +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +4.46 % +3.80 % +Expected long-term rate of return on plan assets +6.75 % +7.00 % +Rate of compensation increase - pension +3.82 % +3.92 % +Rate of compensation increase - SERP +7.00 % +7.00 % +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five -year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and the service and interest cost for the subsequent year. +60 +Table of Contents +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 28, 2019 were 57 % in equity securities, 38 % in fixed income securities and 5 % in real estate investments. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +December 28, 2019 +December 29, 2018 +(In millions) +Total +% of Total +Total +% of Total +Equity securities +$ +162.2 +1 +56.4 +% +$ +138.2 +1 +54.4 +% +Fixed income securities +106.2 +1 +36.9 +% +98.0 +1 +38.5 +% +Real estate investments +16.9 +1 +5.9 +% +16.1 +1 +6.3 +% +Other +2.3 +2 +0.8 +% +2.1 +2 +0.8 +% +Fair value of plan assets +$ +287.6 +100.0 +% +$ +254.4 +100.0 +% +1 +In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +2 +In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 16 for additional information. +The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2020 and to make $ 3.7 million in contributions to the SERP in fiscal 2020 . +Expected benefit payments for the fiscal years subsequent to December 28, 2019 are as follows: +(In millions) +2020 +2021 +2022 +2023 +2024 +2025-2029 +Expected benefit payments +$ +15.7 +$ +16.3 +$ +17.0 +$ +17.7 +$ +18.5 +$ +102.6 +14. +INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) +2019 +2018 +2017 +United States +$ +79.3 +$ +159.2 +$ +( 78.2 +) +Foreign +66.6 +68.2 +67.6 +Earnings (loss) before income taxes +$ +145.9 +$ +227.4 +$ +( 10.6 +) +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) +2019 +2018 +2017 +Current expense: +Federal +$ +10.6 +$ +6.7 +$ +48.1 +State +0.5 +2.4 +1.9 +Foreign +12.5 +10.9 +14.0 +Deferred expense (credit): +Federal +( 5.8 +) +2.1 +( 72.0 +) +State +( 2.0 +) +3.3 +( 0.2 +) +Foreign +1.2 +1.7 +( 1.7 +) +Income tax provision +$ +17.0 +$ +27.1 +$ +( 9.9 +) +61 +Table of Contents +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: +Fiscal Year +(In millions) +2019 +2018 +2017 +Income taxes at U.S. statutory rates of 21%, 21% and 35% +$ +30.6 +$ +47.7 +$ +( 3.7 +) +State income taxes, net of federal income tax +0.5 +2.8 +( 4.2 +) +(Nontaxable earnings) non-deductible losses of foreign affiliates: +Cayman Islands +— +— +( 3.5 +) +Other +( 0.1 +) +( 0.1 +) +( 0.3 +) +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong +( 8.5 +) +( 10.8 +) +( 17.3 +) +Other +2.8 +( 3.1 +) +3.5 +Adjustments for uncertain tax positions +( 1.0 +) +( 1.4 +) +0.4 +Change in valuation allowance +( 0.2 +) +3.3 +3.0 +Change in state tax rates +( 1.5 +) +1.9 +0.1 +Transition tax due to TCJA +— +( 0.1 +) +58.1 +Remeasurement of U.S. deferred taxes due to TCJA +— +— +( 52.5 +) +Global Intangible Low Tax Income tax +2.1 +3.7 +— +Foreign Derived Intangible Income tax benefit +( 4.4 +) +( 6.8 +) +— +Non-deductible executive compensation +2.0 +0.9 +0.7 +Permanent adjustments related to employee share based compensation +( 5.1 +) +( 3.8 +) +( 1.9 +) +Deferred tax on future cash dividends +0.6 +( 0.9 +) +3.0 +Other Permanent adjustments and non-deductible expenses +( 0.6 +) +( 6.7 +) +0.6 +Other +( 0.2 +) +0.5 +4.1 +Income tax provision +$ +17.0 +$ +27.1 +$ +( 9.9 +) +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) +December 28, 2019 +December 29, +2018 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances +$ +5.7 +$ +4.9 +Deferred compensation accruals +4.0 +6.9 +Accrued pension expense +25.3 +21.6 +Stock-based compensation +14.5 +16.9 +Net operating loss and foreign tax credit carryforwards +17.6 +19.2 +Book over tax depreciation and amortization +0.5 +0.8 +Tenant lease expenses +3.6 +4.1 +Environmental reserve +15.4 +5.0 +Other +5.1 +5.8 +Total gross deferred income tax assets +91.7 +85.2 +Less valuation allowance +( 17.6 +) +( 17.8 +) +Net deferred income tax assets +74.1 +67.4 +Deferred income tax liabilities: +Intangible assets +( 157.5 +) +( 157.3 +) +Tax over book depreciation and amortization +( 8.6 +) +( 8.3 +) +Other +( 4.1 +) +( 6.6 +) +Total deferred income tax liabilities +( 170.2 +) +( 172.2 +) +Net deferred income tax liabilities +$ +( 96.1 +) +$ +( 104.8 +) +62 +Table of Contents +The valuation allowance for deferred income tax assets as of December 28, 2019 and December 29, 2018 was $ 17.6 million and $ 17.8 million , respectively. The net decrease in the total valuation allowance during fiscal 2019 was $ 0.2 million . The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation allowance results in a decrease against the state deferred tax assets of $ 0.5 million , an increase related to state net operating loss carryforward of $ 1.3 million , and a net decrease relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 1.0 million . +At December 28, 2019 , the Company had foreign net operating loss carryforwards of $ 27.3 million , which have expirations ranging from 2020 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 161.4 million and $ 10.4 million respectively, which have expirations ranging from 2022 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.9 million , which are available for an unlimited carryforward period to offset future foreign taxes. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) +2019 +2018 +Unrecognized tax benefits at beginning of the year +$ +7.9 +$ +9.3 +Increases related to current year tax positions +1.6 +0.8 +Decreases related to prior year positions +( 1.4 +) +( 2.0 +) +Decreases relating to settlements with taxing authorities +( 1.2 +) +— +Decrease due to lapse of statute +— +( 0.2 +) +Unrecognized tax benefits at end of the year +$ +6.9 +$ +7.9 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 6.5 million and $ 7.1 million as of December 28, 2019 and December 29, 2018 , respectively. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 1.5 million and $ 2.4 million as of December 28, 2019 and December 29, 2018 , respectively. +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2015 . +The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 1.2 million and $ 0.6 million for fiscal years 2019 and 2018, respectively. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 272.1 million at December 28, 2019 . However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +15. +ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) +AOCI represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +63 +Table of Contents +The change in accumulated other comprehensive income (loss) during fiscal years 2019 and 2018 is as follows: +(In millions) +Foreign +currency +translation +adjustments +Derivatives +Pension +adjustments +Total +Balance of AOCI as of December 30, 2017 +$ +( 32.7 +) +$ +( 13.9 +) +$ +( 28.6 +) +$ +( 75.2 +) +Other comprehensive income (loss) before reclassifications (1) +( 20.3 +) +14.4 +( 9.9 +) +( 15.8 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +3.8 +(2) +10.5 +(3) +14.3 +Income tax (expense) benefit +— +( 1.3 +) +( 2.2 +) +( 3.5 +) +Net reclassifications +— +2.5 +8.3 +10.8 +Net current-period other comprehensive income (loss) (1) +( 20.3 +) +16.9 +( 1.6 +) +( 5.0 +) +Reclassifications to retained earnings (4) +$ +— +$ +( 2.1 +) +$ +( 6.0 +) +$ +( 8.1 +) +Balance of AOCI as of December 29, 2018 +$ +( 53.0 +) +$ +0.9 +$ +( 36.2 +) +$ +( 88.3 +) +Other comprehensive income (loss) before reclassifications (1) +5.4 +0.9 +( 14.6 +) +( 8.3 +) +Amounts reclassified from accumulated other comprehensive income (loss) +— +( 9.8 +) +(2) +2.6 +(3) +( 7.2 +) +Income tax (expense) benefit +— +2.2 +( 0.5 +) +1.7 +Net reclassifications +— +( 7.6 +) +2.1 +( 5.5 +) +Net current-period other comprehensive income (loss) (1) +5.4 +( 6.7 +) +( 12.5 +) +( 13.8 +) +Balance of AOCI as of December 28, 2019 +$ +( 47.6 +) +$ +( 5.8 +) +$ +( 48.7 +) +$ +( 102.1 +) +(1) +Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) +Amounts related to foreign currency derivatives deemed to be highly effective are included in cost of goods sold. Amounts related to foreign currency derivatives that are no longer deemed to be highly effective are included in other income. Amounts related to interest rate swaps and the cross currency swap are included in interest expense. +(3) +Amounts reclassified are included in the computation of net pension expense, and includes $ 7.2 million in fiscal 2018 related to a settlement loss. +(4) +Amounts reclassified to retained earnings upon adoption of ASU 2017-12 and ASU 2018-02. +16. +FAIR VALUE MEASUREMENTS +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: +Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: +Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: +Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +64 +Table of Contents +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) +December 28, 2019 +December 29, 2018 +Financial assets: +Derivatives +$ +2.3 +$ +10.3 +Financial liabilities: +Derivatives +$ +( 6.6 +) +$ +( 8.2 +) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. The two interest rate swaps are valued based on the current forward rates of the future cash flows. The fair value of the cross-currency swap is determined using the current forward rates and changes in the spot rate. +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt are as follows: +(In millions) +December 28, 2019 +December 29, 2018 +Carrying value +$ +798.4 +$ +570.1 +Fair value +817.6 +566.8 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +17. +LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M Company changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets and Scotchgard™. +The United States Centers for Disease Control and Prevention has concluded that studies of the health effects of PFOA and PFOS are “inconsistent and inconclusive,” but in May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion ("ppt") combined for PFOA and PFOS. Lifetime health advisories, while not enforceable, serve as guidance and are benchmarks for determining if concentrations of chemicals in tap water from public utilities are safe for public consumption. In January 2018, the Michigan Department of Environmental Quality (“MDEQ”) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. On April 22, 2019, the MDEQ was reorganized into the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”). +The Company has been served with two regulatory actions including a civil action filed by the EGLE under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”), Part 201 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) and Part 31 of NREPA, and a Unilateral Administrative Order issued by the EPA under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) Section 106. The Company has also been served with individual lawsuits and three putative class action lawsuits. The three putative class action lawsuits were subsequently refiled as a single consolidated putative class action lawsuit. +65 +Table of Contents +Civil and Regulatory Actions of EGLE and EPA +On January 10, 2018, EGLE filed a civil action against the Company in the U.S District Court for the Western District of Michigan under RCRA and Parts 201 and 31 of NREPA alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has contributed to the disposal of solid wastes that was done in a way that resulted in releases of PFAS at levels that resulted in detections exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action"). Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, CERCLA, Part 201 of NREPA, and common law nuisance. +On December 19, 2018, the Company filed a third-party complaint against 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the EGLE Action ("the 3M Action"). On June 20, 2019, the 3M Company filed a counterclaim against the Company in response to the 3M Action, seeking, among other things, contractual and common law indemnity and contribution under CERCLA and Part 201 of NREPA. On February 3, 2020, the parties entered into a consent decree resolving the EGLE Action, which was approved by U.S. District Judge Janet T. Neff on February 19, 2020 (the “Consent Decree”). On February 20, 2020, the Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company will pay the Company a lump sum amount of $ 55.0 million in fiscal 2020. The Company has recognized the $ 55.0 million as a loss recovery partially offsetting the environmental remediation costs recorded in fiscal 2019 and is recorded in the prepaid expenses and other current assets line item on the consolidated balance sheets. +Under the Consent Decree, the Company will pay to extend Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million. The Consent Decree also obligates the Company to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to the assess the presence of PFAS in area groundwater. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a). The effective date of the Order was February 1, 2018. The Order pertained to the Company's Tannery and House Street sites and directed the Company to conduct specified removal actions, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites. On October 28, 2019, the EPA and the Company entered into an Administrative Settlement and Order on Consent (“AOC”) that supersedes the Order and addresses the agreed-upon removal actions outlined in the Order. The Company has already completed some of these activities and submitted work plans for completion of the remaining items. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual and Class Action Litigation +Individual lawsuits and three putative class action lawsuits have been filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. The three putative class action lawsuits were subsequently refiled in the U.S. District Court for the Western District of Michigan as a single consolidated putative class action lawsuit. 3M Company, which sold Scotchgard containing PFAS to the Company, has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit. In addition, the current owner of a former landfill and gravel mining operation has sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (collectively with the individual lawsuits and putative class action, the “Litigation Matters”). +Assessing potential liability with respect to the Litigation Matters at this time is difficult. The Litigation Matters are in various stages of discovery and related motions. In addition, there is minimal direct and relevant precedent for these types of claims related to PFAS, and the science regarding the human health effects of PFAS exposure in the environment remains inconclusive and inconsistent, thereby creating additional uncertainties. Due to these factors, combined with the complexities and uncertainties of litigation, the Company is unable to conclude that adverse verdicts resulting from the Litigation Matters are probable, and therefore no amounts are currently reserved for these claims. The Company intends to continue to vigorously defend itself against these claims. +In addition, in December 2018 the Company filed a lawsuit against certain of its historic liability insurers, seeking their participation in Wolverine's defense and remediation efforts. No estimated recoveries from legacy insurance policies have been recognized. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment and intellectual property. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among +66 +Table of Contents +other things, the meritorious legal defenses available and liabilities that have been recorded along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +Environmental Liabilities +The following is a summary of the activity with respect to the environmental remediation reserve established by the Company: +Fiscal Year +(In millions) +2019 +2018 +Remediation liability at beginning of the year +$ +22.6 +$ +31.1 +Changes in estimate +112.9 +4.8 +Amounts paid +( 11.1 +) +( 13.3 +) +Remediation liability at the end of the year +$ +124.4 +$ +22.6 +The reserve balance as of December 28, 2019 includes $ 41.5 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 82.9 million expected to be paid over the course of up to 25 years, recorded in other liabilities. +The Company's remediation activity at the Tannery property, House Street site and other relevant disposal sites is ongoing. Although the recent Consent Decree has made near-term costs more clear, it is difficult to estimate the long-term cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to December 28, 2019 are as follows: +(In millions) +2020 +2021 +2022 +2023 +2024 +Thereafter +Minimum royalties +$ +1.5 +$ +1.7 +$ +1.8 +$ +— +$ +— +$ +— +Minimum advertising +3.2 +3.3 +3.4 +3.5 +3.6 +— +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.3 million , $ 2.2 million and $ 2.3 million for fiscal years 2019 , 2018 and 2017 , respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 3.6 million , $ 3.3 million and $ 3.2 million for fiscal years 2019 , 2018 and 2017 , respectively. +18. +BUSINESS SEGMENTS +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable operating segments. During the first quarter of 2019, the brands that were formerly aligned with the Wolverine Outdoor & Lifestyle Group and Wolverine Heritage Group were realigned into a new operating segment, the Wolverine Michigan Group. The change was to align our brands under key leadership to best support innovation and efficiency. All prior period disclosures have been retrospectively adjusted to reflect these new reportable operating segments. +• +Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +67 +Table of Contents +• +Wolverine Boston Group , consisting of Sperry ® footwear and apparel, Saucony ® footwear and apparel, Keds ® footwear and apparel, and the Kids footwear business, which includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable operating segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations that include third-party commission revenues and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate expenses, organizational transformation costs, reorganization costs, restructuring and other related costs, impairment of intangible assets, environmental and other related costs, a foreign currency remeasurement gain recorded in the second quarter of fiscal 2018 and a pension settlement loss related to the Company's purchase of pension annuity contracts in the fourth quarter of fiscal 2018 . The Company’s operating segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. The operating segment managers all report directly to the chief operating decision maker. +Company management uses various financial measures to evaluate the performance of the reportable operating segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) +2019 +2018 +2017 +Revenue: +Wolverine Michigan Group +$ +1,299.7 +$ +1,272.2 +$ +1,267.8 +Wolverine Boston Group +910.9 +895.5 +988.8 +Other +63.1 +71.5 +93.4 +Total +$ +2,273.7 +$ +2,239.2 +$ +2,350.0 +Operating profit (loss): +Wolverine Michigan Group +$ +244.8 +$ +257.6 +$ +243.7 +Wolverine Boston Group +153.8 +157.5 +153.6 +Other +2.9 +3.1 +5.2 +Corporate +( 230.5 +) +( 166.3 +) +( 370.9 +) +Total +$ +171.0 +$ +251.9 +$ +31.6 +Depreciation and amortization expense: +Wolverine Michigan Group +$ +2.4 +$ +2.7 +$ +2.9 +Wolverine Boston Group +3.3 +3.3 +3.7 +Other +2.4 +3.1 +3.5 +Corporate +24.6 +22.4 +27.1 +Total +$ +32.7 +$ +31.5 +$ +37.2 +Capital expenditures: +Wolverine Michigan Group +$ +2.2 +$ +3.1 +$ +0.5 +Wolverine Boston Group +5.7 +1.2 +1.6 +Other +2.2 +1.8 +1.8 +Corporate +24.3 +15.6 +28.5 +Total +$ +34.4 +$ +21.7 +$ +32.4 +68 +Table of Contents +(In millions) +December 28, +2019 +December 29, +2018 +Total assets: +Wolverine Michigan Group +$ +773.8 +$ +626.8 +Wolverine Boston Group +1,354.8 +1,282.2 +Other +38.4 +50.0 +Corporate +313.0 +224.1 +Total +$ +2,480.0 +$ +2,183.1 +Goodwill: +Wolverine Michigan Group +$ +144.4 +$ +143.8 +Wolverine Boston Group +294.5 +280.6 +Total +$ +438.9 +$ +424.4 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) +2019 +2018 +2017 +United States +$ +1,507.9 +$ +1,505.2 +$ +1,608.7 +Foreign: +Europe, Middle East and Africa +343.1 +325.7 +322.4 +Asia Pacific +193.7 +186.0 +189.4 +Canada +117.9 +116.7 +121.2 +Latin America +111.1 +105.6 +108.3 +Total from foreign territories +765.8 +734.0 +741.3 +Total revenue +$ +2,273.7 +$ +2,239.2 +$ +2,350.0 +The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment and lease right-of-use assets, is as follows: +(In millions) +December 28, +2019 +December 29, +2018 +December 30, +2017 +United States +$ +247.2 +$ +117.1 +$ +122.4 +Foreign countries +54.6 +13.8 +14.3 +Total +$ +301.8 +$ +130.9 +$ +136.7 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2019 , the Company sourced 100 % of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +19. +BUSINESS ACQUISITIONS +On April 30, 2019, the Company acquired assets and assumed liabilities from Sportlab S.R.L. (“Sportlab”), the distributor of Saucony ® footwear in Italy. Total purchase consideration of $ 25.2 million includes cash paid, extinguishment of Sportlab’s accounts payable balance that was due to the Company at the time of acquisition and contingent consideration. The contingent consideration was based on sales activity from the date of the acquisition through the end of fiscal 2019 and was paid in the first quarter of fiscal 2020. The detailed amounts of each component of the purchase consideration are as follows: +(In millions) +Purchase Consideration +Cash paid +$ +15.1 +Extinguishment of Sportlab’s accounts payable balance +4.6 +Contingent consideration +5.5 +Total purchase consideration +$ +25.2 +69 +Table of Contents +The Company accounted for the acquisition under the provisions of FASB ASC Topic 805, Business Combinations . The related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results for the acquired Saucony ® distribution business are included in the Company’s consolidated results of operations beginning April 30, 2019, and are included in the Wolverine Boston Group reporting group for segment reporting purposes. +The final allocation of the purchase price as of December 28, 2019 was: +(In millions) +Final Valuation +Accounts receivable +$ +1.8 +Inventories +6.2 +Goodwill +12.0 +Amortizable intangibles +12.9 +Total assets acquired +32.9 +Deferred income taxes +3.2 +Other liabilities +4.5 +Total liabilities assumed +7.7 +Net assets acquired +$ +25.2 +The excess of the purchase price over the fair value of the net assets acquired, amounting to $ 12.0 million , was recorded as goodwill in the consolidated balance sheet and was assigned to the Wolverine Boston Group operating segment. The goodwill that was recognized is attributable to the efficiencies to be gained by integrating operations with the Saucony ® distribution business purchased from Sportlab. Other intangible assets acquired include order backlog, valued at $ 1.7 million , and customer relationship assets, valued at $ 11.2 million , which had estimated useful lives at the acquisition date of 7 months and 14 years , respectively. +20. +DIVESTITURES +In the third quarter of fiscal 2017, the Company entered into a global, multi-year licensing agreement of the Stride Rite ® brand. As part of this agreement, the Company agreed to sell inventory and certain other assets and liabilities related to the Stride Rite ® brand and provide certain transition services to the licensee. The Company received cash of $ 16.9 million for the sale of these assets and liabilities and recognized a gain of $ 0.2 million , which is included in the selling, general and administrative expenses line item on the consolidated statement of operations . The assets and liabilities sold, which were reported in the Wolverine Boston Group, are as follows: +(In millions) +Book Value +Inventory +$ +17.1 +Prepaid expenses and other current assets +1.4 +Other accrued liabilities +( 1.8 +) +Total assets and liabilities sold +$ +16.7 +In the third quarter of fiscal 2017, the Company sold certain intangible and other assets related to the Sebago ® brand. As part of this agreement, the buyer acquired the intellectual property rights to design, manufacture and market all products under the Sebago ® brand. The Company received cash of $ 14.3 million and recognized a gain on sale of $ 8.4 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations. The assets sold, which were reported in the Wolverine Michigan Group, are as follows: +(In millions) +Book Value +Indefinite-lived intangibles +5.4 +Amortizable intangibles +0.2 +Total assets sold +$ +5.6 +70 +Table of Contents +In the third quarter of fiscal 2017, the Company sold its Department of Defense contract business, which comprised an owned manufacturing facility, the transfer of employees and certain associated assets. The goodwill allocated to the sale of the business was nominal. The Company received cash of $ 7.8 million and recognized a loss on sale of $ 1.6 million , net of transaction costs, which is included in the selling, general and administrative expenses line item on the consolidated statement of operations. The assets sold, which were reported in the Wolverine Michigan Group and Other segments, are as follows: +(In millions) +Book Value +Inventory +$ +5.6 +Prepaid expenses and other current assets +0.5 +Property, plant and equipment +3.0 +Total assets sold +$ +9.1 +21. +QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) +The aggregate quarterly earnings per share amounts disclosed in the table below may not equal the annual per share amounts due to rounding and the fact that results for each quarter are calculated independently of the full fiscal year. The Company’s unaudited quarterly results of operations are as follows: +Fiscal 2019 Quarters Ended +(In millions, except per share data) +March 30, 2019 +June 29, 2019 +September 28, 2019 +December 28, 2019 +Revenue +$ +523.4 +$ +568.6 +$ +574.3 +$ +607.4 +Gross profit +220.2 +230.4 +243.3 +229.9 +Net earnings (loss) attributable to Wolverine World Wide, Inc. +40.5 +40.2 +48.7 +( 0.9 +) +Net earnings (loss) per share: +Basic +$ +0.44 +$ +0.45 +$ +0.57 +$ +( 0.01 +) +Diluted +0.43 +0.45 +0.57 +( 0.01 +) +Fiscal 2018 Quarters Ended +(In millions, except per share data) +March 31, 2018 +June 30, 2018 +September 29, 2018 +December 29, 2018 +Revenue +$ +534.1 +$ +566.9 +$ +558.6 +$ +579.6 +Gross profit +227.9 +234.2 +232.1 +227.1 +Net earnings attributable to Wolverine World Wide, Inc. +46.7 +55.3 +58.8 +39.3 +Net earnings per share: +Basic +$ +0.49 +$ +0.58 +$ +0.62 +$ +0.39 +Diluted +0.48 +0.57 +0.60 +0.39 +71 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of December 28, 2019 and December 29, 2018 , the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 28, 2019 , and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 28, 2019 and December 29, 2018 , and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2019 , in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2019 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2020 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. +Valuation of indefinite-lived intangibles +Description of the Matter +At December 28, 2019, the Company’s indefinite-lived intangible assets were $604.5 million, which included $518.2 million for the Sperry trade name. As discussed in Notes 1 and 4 of the consolidated financial statements, indefinite-lived intangibles are tested for impairment at least annually. +Auditing management’s annual impairment test for the Sperry trade name was complex and highly judgmental due to the significant estimation required in determining the fair value of the Sperry trade name indefinite-lived intangible asset. The fair value estimate was sensitive to significant assumptions such as future revenue growth and operating earnings, and the discount rate, which are affected by expectations about future market or economic conditions. +72 +Table of Contents +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s Sperry trade name impairment review process. This included controls over the significant assumptions described above and the completeness and accuracy of the data used in the fair value estimate. +To test the estimated fair value of the Sperry trade name, we performed audit procedures that included, among others, assessing the methodology and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate. We also compared the significant assumptions used by management to current industry and economic trends, to the business model used by Sperry and other relevant factors. We assessed the historical accuracy of management’s estimates and performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair value of the trade name that would result from changes in the assumptions. +Loss contingencies for environmental matters +Description of the Matter +As discussed in Note 17, the Company recognized a loss contingency related to environmental matters on an undiscounted basis for $124.4 million. Specifically, the Company was served with two regulatory actions filed by the Environmental Protection Agency (“EPA”) and Michigan Department of Environment, Great Lakes, and Energy (“EGLE”) in early 2018. The Company, EGLE and EPA entered into various settlement agreements, that address and outline the Company’s required remedial actions. The Company believes it is probable that it will incur losses related to the required remediation actions and recognized a loss contingency for its estimate of the cost of the remedial actions. +Auditing management’s accounting for and disclosure of loss contingencies from the environmental matters was especially challenging as evaluating the probability and amount of loss is highly subjective and requires significant judgment due in part to the uncertain nature and extent of the activities to complete the required remedial actions. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification, evaluation and disclosure of these environmental matters, including the Company’s assessment and measurement of the estimate of the probable liability. +To test the assessment of the probability of incurrence of a loss and the estimated loss, to the extent it was reasonably estimable, we performed audit procedures that included, among others, reviewing summaries of the proceedings and related correspondence with attorneys and environmental agencies, reviewing legal counsel confirmation letters, assessing scope and cost estimates of the Company’s third-party environmental specialists used in determination of the reserve, utilizing internal environmental specialists to assist with assessing the cost estimate (by using all the information available) and searching for other publicly available information that might indicate new or contrary facts related to the matter. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 26, 2020 +73 +Table of Contents +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries internal control over financial reporting as of December 28, 2019 , based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 28, 2019 , based on the COSO criteria . +As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sportlab S.R.L. (Sportlab), which are included in the December 28, 2019 consolidated financial statements of the Company and constituted less than 2% of consolidated total assets and consolidated net sales as of, and for the year-ended, December 28, 2019. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Sportlab. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 28, 2019 and December 29, 2018 , the related consolidated statements of operations, comprehensive income , stockholders' equity and cash flows for each of the three years in the period ended December 28, 2019 , and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 26, 2020 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 26, 2020 +74 +Table of Contents +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. +Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting as of December 28, 2019 , based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). The Company's management excluded Sportlab S.R.L., acquired on April 30, 2019, from its evaluation of internal control over financial reporting as of December 28, 2019. As of December 28, 2019, Sportlab S.R.L. represented less than 2% of our consolidated total assets and consolidated net sales for the annual period ended December 28, 2019. Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 28, 2019 . +The effectiveness of the Company’s internal control over financial reporting as of December 28, 2019 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 28, 2019 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. +Other Information +None. +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine World Wide, Inc. expected to be held on April 30, 2020 . The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct is posted on our website located at http://www.wolverineworldwide.com/investor-relations/corporate-governance/. We intend to disclose future amendments to certain provisions of the Code of Business Conduct, and waivers of the Code of Business Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver. +Item 11. +Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +Item 14. +Principal Accounting Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. +PART IV +Item 15. +Exhibits, Financial Statement Schedules +(a) +The following documents are filed as part of this report: +(1) +Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• +Consolidated Statements of Operations for the Fiscal Years Ended December 28, 2019 , December 29, 2018 and December 30, 2017 . +• +Consolidated Statements of Comprehensive Income for the Fiscal Years Ended December 28, 2019 , December 29, 2018 and December 30, 2017 . +• +Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018 . +• +Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 2019 , December 29, 2018 and December 30, 2017 . +• +Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 28, 2019 , December 29, 2018 and December 30, 2017 . +• +Notes to the Consolidated Financial Statements. +• +Reports of Independent Registered Public Accounting Firm. +(2) +Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• +Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) +Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Exhibit Number +Document +3.1 +Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 8, 2019. +75 +Table of Contents +Exhibit Number +Document +4.1 +Description of the Registrant's Securities Registered Pursuant To Section 12 of The Securities Exchange Act of 1934. +4.2 +Senior Notes Indenture, dated August 30, 2016, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +4.3 +Form of 5.000% Senior Note due 2026. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +10.1 +Amended and Restated Stock Incentive Plan of 2005.* Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.2 +Amended and Restated Directors’ Stock Option Plan.* Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.3 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.4 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.5 +Wolverine World Wide, Inc. Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2019. +10.6 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.7 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.7. +10.8 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.8. +10.9 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.10 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.11 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.12 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.13 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.14 +2016 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.15 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.16 +2017 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +10.17 +Form of Performance Stock Unit Award Agreement (2017 - 2019 performance period).* Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +10.18 +2018 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.19 +Form of Performance Restricted Stock Unit Agreement (2018 - 2020 performance period).* Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.20 +2019 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2019. +76 +Table of Contents +Exhibit Number +Document +10.21 +Form of Performance Stock Unit Award Agreement (2019 - 2021 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2019. +10.22 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.23 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.24 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.24. +10.25 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.26 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.27 +Wolverine World Wide, Inc. Deferred Compensation Plan, Amended and Restated.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.28 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.29 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.30 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016, as amended and restated.* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 27, 2018. +10.31 +Sixth Amendment to the Wolverine Employees' Pension Plan.* Incorporated by reference to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 29, 2018. +10.32 +Resolution of the Wolverine World Wide, Inc. Board of Directors Authorizing the Merger of the Wolverine Collectively Bargained Employees’ Pension Plan and the Wolverine Employees’ Pension Plan. +10.33 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.34 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.35 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.36 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.37 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +77 +Table of Contents +Exhibit Number +Document +10.38 +Receivables Purchase Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.39 +Amendment to the Receivables Purchase Agreement, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser, dated January 5, 2018. Incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.40 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.41 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +10.42 +2018 Replacement Facility Amendment, dated as of December 6, 2018 among the Company, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, Wells Fargo Bank, National Association, Bank of America, N.A. and HSBC Bank USA, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2018. +10.43 +Consent Decree by and among Wolverine World Wide, Inc., the State of Michigan, Plainfield Charter Township, and Algoma Township. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 7, 2020. +21 +Subsidiaries of Registrant. +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101 +The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 28, 2019, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Consolidated Financial Statements. +104 +The cover page of the Company’s Annual Report on Form 10-K for the year ended December 28, 2019, formatted in Inline XBRL (included in Exhibit 101). +* +Management contract or compensatory plan or arrangement. +Item 16. +Form 10-K Summary +None. +78 +Table of Contents +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: +February 26, 2020 +By: +/s/ Blake W. Krueger +Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature +Title +Date +/s/ Blake W. Krueger +Chairman, Chief Executive Officer and President (Principal Executive Officer) +February 26, 2020 +Blake W. Krueger +/s/ Michael D. Stornant +Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) +February 26, 2020 +Michael D. Stornant +/s/ Jeffrey M. Boromisa +Director +February 26, 2020 +Jeffrey M. Boromisa +/s/ Gina R. Boswell +Director +February 26, 2020 +Gina R. Boswell +/s/ Roxane Divol +Director +February 26, 2020 +Roxane Divol +/s/ William K. Gerber +Director +February 26, 2020 +William K. Gerber +/s/ David T. Kollat +Director +February 26, 2020 +David T. Kollat +/s/ Brenda J. Lauderback +Director +February 26, 2020 +Brenda J. Lauderback +/s/ Nicholas T. Long +Director +February 26, 2020 +Nicholas T. Long +/s/ David W. McCreight +Director +February 26, 2020 +David W. McCreight +/s/ Michael A. Volkema +Director +February 26, 2020 +Michael A. Volkema +79 +Table of Contents +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +Column A +Column B +Column C +Column D +Column E +Additions +(In millions) +Balance at +Beginning of +Period +(1) +Charged to +Costs and +Expenses +(2) +Charged to +Other +Accounts +(Describe) +Deductions +(Describe) +Balance at +End of +Period +Fiscal Year Ended December 28, 2019 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +9.5 +$ +16.3 +— +$ +13.7 +(A) +$ +12.1 +Allowance for sales returns +13.6 +50.2 +— +52.4 +(B) +11.4 +Allowance for cash discounts +3.5 +4.1 +— +4.4 +(C) +3.2 +Inventory valuation allowances +8.3 +6.9 +— +7.9 +(D) +7.3 +Total +$ +34.9 +$ +77.5 +— +$ +78.4 +$ +34.0 +Fiscal Year Ended December 29, 2018 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +14.2 +$ +13.0 +— +$ +17.7 +(A) +$ +9.5 +Allowance for sales returns +12.6 +53.8 +— +52.8 +(B) +13.6 +Allowance for cash discounts +4.7 +7.7 +— +8.9 +(C) +3.5 +Inventory valuation allowances +11.5 +6.1 +— +9.3 +(D) +8.3 +Total +$ +43.0 +$ +80.6 +— +$ +88.7 +$ +34.9 +Fiscal Year Ended December 30, 2017 +Deducted from asset accounts: +Allowance for doubtful accounts +$ +17.2 +$ +18.1 +— +$ +21.1 +(A) +$ +14.2 +Allowance for sales returns +16.3 +52.6 +— +56.3 +(B) +12.6 +Allowance for cash discounts +5.9 +17.9 +— +19.1 +(C) +4.7 +Inventory valuation allowances +18.0 +10.6 +— +17.1 +(D) +11.5 +Total +$ +57.4 +$ +99.2 +— +$ +113.6 +$ +43.0 +(A) +Accounts charged off, net of recoveries. +(B) +Actual customer returns. +(C) +Discounts given to customers. +(D) +Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2019/0000110471-20-000008/filing_metadata.csv b/raw/filings/0000110471/2019/0000110471-20-000008/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..6d3807ec323e893dcf03c4c22020be646739c9ae --- /dev/null +++ b/raw/filings/0000110471/2019/0000110471-20-000008/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2020-02-26,2019-12-28,2020-02-26T20:21:45.000Z,0000110471-20-000008,wolverineform10-k2019.htm,FORM 10-K,15132710,1,1,https://www.sec.gov/Archives/edgar/data/110471/000011047120000008/wolverineform10-k2019.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047120000008/,2019,2019,1 diff --git a/raw/filings/0000110471/2019/0000110471-20-000008/item13.txt b/raw/filings/0000110471/2019/0000110471-20-000008/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..d7a2a007152838de1cbac9cc05799e056a6d8573 --- /dev/null +++ b/raw/filings/0000110471/2019/0000110471-20-000008/item13.txt @@ -0,0 +1,3 @@ +Item 13. +Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10. \ No newline at end of file diff --git a/raw/filings/0000110471/2019/0000110471-20-000008/rpt_disclosure.txt b/raw/filings/0000110471/2019/0000110471-20-000008/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..4093da2064a6be98495f5669f8227459ff4e03a6 --- /dev/null +++ b/raw/filings/0000110471/2019/0000110471-20-000008/rpt_disclosure.txt @@ -0,0 +1,49 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since December 30, 2018, the Company has not engaged in any "related person" transactions with its directors, executive officers or +holders of 5% or more of Company voting securities, affiliates or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. They require the Governance +Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must +review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +any employment compensation paid to an executive officer of the Company if the Compensation Committee approved or recommended to the Board of Directors for approval of such compensation; +(2) +any compensation paid to a director for service as a director of the Company; +(3) +any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another entity, or +both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%; +(4) +any transaction in which the Related Person's interest arises solely from the ownership of the Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend); or +(5) +any transaction with another publicly traded company where the Related Person's interest arises solely from the ownership of more than 5% of the Company's common stock and the ownership of a non-controlling interest in the other publicly traded +company. +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an Annual Report on Form 10-K and Proxy Statement, an executive officer, director or, to the extent information regarding such nominee is being +presented in a proxy or information statement relating to the election of that nominee as a director, nominee for election as a director; +(b) +beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +immediate family member* of any of the foregoing. +* Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers and +fathers-in-law, sons-and daughters-in-law, and brothers- and sisters-in-law, and anyone residing in such person's home (other than a tenant or employee). +The +Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar +circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested +Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. +2020 +PROXY +STATEMENT +72 +Table of Contents +Additional Information \ No newline at end of file diff --git a/raw/filings/0000110471/2020/0000110471-21-000008/filing.txt b/raw/filings/0000110471/2020/0000110471-21-000008/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..d3e818b832fa4c77e962154bd37e53b3b3f4290b --- /dev/null +++ b/raw/filings/0000110471/2020/0000110471-21-000008/filing.txt @@ -0,0 +1,2080 @@ +www-20210102 +1/2/2021 2020 FY 0000110471 false ☒ ☒ 5.2 0.2 1.3 0.4 2.2 1.3 8.0 3.9 2.6 1.4 0.5 0.7 — — 1.5 January 2 33.5 26.7 1 1 320,000,000 320,000,000 110,426,769 108,329,250 28,285,274 27,181,512 1,497,478 38,655 154,084 600,041 681,389 1,357,841 0.40 0.40 0.32 5,479 7,460 7,761 877,624 10,914,965 5,349,262 231,617 368,326 219,039 53 52 52 538 545 3.8 5 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0000110471 us-gaap:SalesReturnsAndAllowancesMember 2017-12-30 0000110471 us-gaap:SalesReturnsAndAllowancesMember 2017-12-31 2018-12-29 0000110471 www:ReserveforPromptPaymentDiscountsMember 2017-12-30 0000110471 www:ReserveforPromptPaymentDiscountsMember 2017-12-31 2018-12-29 0000110471 us-gaap:InventoryValuationReserveMember 2017-12-30 0000110471 us-gaap:InventoryValuationReserveMember 2017-12-31 2018-12-29 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended January 2 , 2021 +or +☐ 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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware 38-1185150 +State or other jurisdiction of +incorporation or organization (I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E. +Rockford , Michigan 49351 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +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 Par Value WWW New York Stock Exchange +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. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ +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 þ Accelerated filer ☐ +Non-accelerated filer +¨ +Smaller reporting company ☐ +Emerging growth company ☐ +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 Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 26, 2020, the last business day of the registrant’s most recently completed second fiscal quarter: $ 1,700,312,291 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 12, 2021 : 82,479,134 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting expected to be held May 6, 2021 are incorporated by reference into Part III of this report. +Table of Contents +PART I +Item 1. +Business +6 +Item 1A. +Risk Factors +12 +Item 1B. +Unresolved Staff Comments +21 +Item 2. +Properties +21 +Item 3. +Legal Proceedings +22 +Item 4. +Mine Safety Disclosures +22 +Supplemental Item. +Executive Officers of the Registrant +22 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +23 +Item 6. +Selected Financial Data +24 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +25 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +34 +Item 8. +Financial Statements and Supplementary Data +36 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +74 +Item 9A. +Controls and Procedures +74 +Item 9B. +Other Information +74 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +74 +Item 11. +Executive Compensation +74 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +74 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +75 +Item 14. +Principal Account ant Fees and Services +75 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +75 +Item 16. +Form 10-K Summary +79 +SIGNATURES +80 +Appendix A: Financial Statement Schedule +A-1 +3 +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• the potential effects of the COVID-19 pandemic on the Company’s business, operations, financial results and liquidity, including the duration and magnitude of such effects, which will depend on numerous evolving factors that the Company cannot currently fully predict or assess, including: the duration and scope of the pandemic; the negative impact on global and regional markets, economies and economic activity, including the duration and magnitude of its impact on unemployment rates, consumer discretionary spending and levels of consumer confidence; actions that governments, businesses and individuals may take in response to the pandemic; and the effects of the pandemic, including all of the foregoing, on the Company's manufacturers, distributors, suppliers, joint venture partners, wholesale customers and other counterparties. The timing and scope of recovery after the pandemic is also uncertain; +• changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• the inability to effectively manage inventory levels; +• increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• foreign currency exchange rate fluctuations; +• currency restrictions; +• capacity constraints, production disruptions, quality issues, price increases or other risks associated with foreign sourcing; +• the cost and availability of raw materials, inventories, services and labor for contract manufacturers; +• labor disruptions; +• changes in relationships with, including the loss of, significant wholesale customers; +• risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; +• risks related to expansion into new markets and complementary product categories as well as consumer-direct operations; +• the impact of seasonality and unpredictable weather conditions; +• the impact of changes in general economic conditions and/or the credit markets on the Company’s manufacturers, distributors, suppliers, joint venture partners and wholesale customers; +• changes in the Company’s effective tax rates; +• failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• the risks of doing business in developing countries and politically or economically volatile areas; +• the ability to secure and protect owned intellectual property or use licensed intellectual property; +• the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; +• risks of breach of the Company’s databases or other systems, or those of its vendors, which contain certain personal information, payment card data or proprietary information, due to cyberattack or other similar events; +• problems affecting the Company’s distribution system, including service interruptions at shipping and receiving ports; +• strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses and implementing new initiatives and ventures; +• the risk of impairment to goodwill and other intangibles; +• the success of the Company’s restructuring and realignment initiatives undertaken from time to time; and +• changes in future pension funding requirements and pension expenses. +4 +These or other uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +5 +PART I +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate e xpenses, such as costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Wolverine Michigan Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you came from, who you love, or how you move — everyone should be welcome in the outdoors and wherever life takes us. Merrell ® works each day to build innovative, thoughtfully-designed, rigorously-tested products that over-deliver on quality, comfort, versatility, and style. Merrell ® designs and creates footwear, apparel, and accessories for the whole family in categories such as hiking, trail running, training, lifestyle, and work. Merrell ® can be found around the world in the Company's own retail stores and on Merrell ® eCommerce sites, including merrell.com, and in industry-leading, partner retailers and digital platforms. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for +6 +over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children - sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path; men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories across three strategic territories; Work, Outdoor and Heritage. The brand is best known for DuraShocks comfort technology in work boots, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Chaco ® : Chaco ® has a rich, 30+ year history of creating footwear that’s “Fit For Adventure” of any kind, whether that’s exploring rivers, trails or swerving city streets. Originating as an innovation in the whitewater rafting world, Chaco ® now designs footwear for all walks of life in the outdoor and lifestyle communities. The brand's mission is to help people find their way, providing access to new people, places, and experiences that make them more confident in who they are and where they’re headed. That’s why we create footwear that comes with all-terrain versatility, a unique 360° fit, unmatched durability and signature LUVSEAT™ footbed arch support. The MyChacos custom sandal program provides customers an opportunity to express their funky individuality, while the ReChaco program helps reduce their impact on the places they explore by repairing used sandals. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire our consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Bates ® : The Bates ® brand supplies footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of Bates ® footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle , casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +Hytest ® Safety Footwear: The Hytest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. Hytest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +2. Wolverine Boston Group +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® remains the leader in the boat shoe category, and has also expanded its business into casuals, wet weather, boots and sneakers. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Sperry ® retail stores and Sperry.com. +7 +Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony's ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as Saucony ® retail stores and an eCommerce site. +Keds ® : Keds ® is an authentic, casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +Kids' Footwear: The Kids' footwear business includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are distributed through premium and better lifestyle retailers, outdoor and sporting goods retailers, as well as through an eCommerce site and by a license partner. +Other Businesses +In addition to its reportable segments, the Company operates a performance leather business, sourcing operations and a multi-brand consumer-direct business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Sourcing Division - The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Consumer-Direct Division - The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfoli o and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each reportable segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive +8 +advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico, Colombia and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +9 +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , Hytest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license term runs through December 31, 2024 and the Harley-Davidson ® license term runs through December 31, 2022. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +Prior to the COVID-19 pandemic, the Company’s business was subject to seasonal influences that could cause significant differences in revenue, earnings and cash flows from quarter to quarter. The COVID-19 pandemic resulted in changes in consumer behavior and preferences in fiscal 2020 that have negatively impacted the Company's fiscal 2020 results. The Company expects the seasonal cadence that the Company experienced historically may continue to be affected as a result of these changes in consumer behavior and preferences. +The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under the Revolving Credit Facility, included in its Amended Senior Credit Facility as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +Human Capital Resources +Employee Profile : As of January 2, 2021, the Company had approximately 3,400 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and as such we work to maximize the +10 +engagement and contribution of our current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : Our talent strategy is focused on attracting top talent and continually developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for our team members. We recently launched an engaging modern recruitment marketing website to tell our compelling story of opportunity and inclusion. Development starts on day one with an enriching Day 1 experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +In order to maximize engagement and contribution of our team members, we conduct regular pulse and check-in surveys to ensure we are in touch with our team member needs and perspectives. Our annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of the most up-to-date and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the employees’ region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state of the art Fitness Center, Child Care, and Doggie Day Care facilities for our employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders through partnerships with top educational institutions which focuses both on business leadership and capabilities needed to evolve our businesses, and on people leadership capabilities to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is viewed as critical to the Company's future success. To enhance the development of employees, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion : The Company is committed to having a diverse and inclusive workforce which is reflected in the wide range of cultures, religions, ethnicities and nationalities, as well as varied professional and educational backgrounds currently represented at the Company. Because the Company believes in cultivating a well-rounded, diverse workforce, the Company continuously seeks out individuals who reflect and support the goal of maintaining a diverse corporation. We have further prioritized diversity and inclusion by hiring an expert partner to help us build a framework to promote an inclusive environment today and into the future in order to make the Company an even greater place to work. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. The Company's focus on the health and safety of its workforce is also evidenced by the actions it has taken in response to the COVID-19 pandemic around the globe, including: +• Increasing employees' work from home flexibility; +• Adjusting attendance policies to encourage those who are sick to stay home; +• Increasing cleaning protocols; +• Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures; +• Implementing temperature screening of employees at the majority of its distribution facilities; +• Establishing new physical distancing procedures for employees who need to be onsite; +• Providing additional personal protective equipment and cleaning supplies; +• Modifying work spaces with plexiglass dividers and touchless faucets; +• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure; +• Prohibiting all domestic and international non-essential travel for all employees; and +• Requiring masks to be worn in all locations where allowed by local law. +The Company distributes its products to a variety of customers, many of which are deemed essential, including customers in the health and safety, critical construction, food and agriculture, and energy sectors. As a result, the majority of the Company's distribution facilities have continued operating since the COVID-19 pandemic began. In order to keep distribution facilities open, the Company invested in creating physically safe work environments for employees. +11 +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. Risk Factors +Business and Operational Risks +The COVID-19 pandemic has had a material adverse impact on the Company’s operations and financial results, and such impact could worsen and last for an unknown period of time. +The COVID-19 pandemic has negatively affected the global economy, disrupted consumer spending and global supply chains, and significantly increased the volatility and disruption of financial markets both globally and in the United States. These conditions have led to a decline in discretionary spending by consumers which has had a negative effect on the Company’s financial condition and results of operations. The extent to which the COVID-19 pandemic impacts the Company’s business, operations and financial results, including the duration and magnitude of such effects, will depend on numerous evolving factors outside of the Company's control that the Company cannot currently fully predict or assess, such as; the duration and scope of the pandemic and effectiveness of containment efforts; the negative impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates, consumer discretionary spending and levels of consumer confidence; and actions governments, businesses and individuals may take in response to the pandemic. The timing of recovery after the pandemic is also uncertain. The Company’s business has been and could continue to be materially adversely affected by several factors related to the COVID-19 pandemic, including, but not limited to: +• The inability of employees, suppliers and other business providers to carry out tasks at ordinary levels of performance as a result of measures taken to limit the spread of COVID-19, such as those promulgated by governmental authorities. +• Further outbreaks could require the closure of the Company's own and wholesale customers recently reopened retail stores. There can be no assurance whether recently reopened stores will remain open. +• Decreased retail traffic resulting from social distancing measures. +• Negative effects on consumer spending due to general macroeconomic conditions, decreased disposable income and increased unemployment. +• Wholesale and distributor customer order cancellations due to lower consumer demand. +• Decline in the performance or financial condition of the Company’s major wholesale customers as a result of retail store closures, bankruptcy or liquidation. +• Disruption to the operations of the Company’s distribution centers and its third-party manufacturers because of facility closures, reductions in operating hours, labor or material shortages, travel limitations or mass transit disruptions. +• Additional expenses related to mitigating the pandemic’s impact on regular operations. +• Increased cyber security risk due to the increase in the number of employees working remotely. +The disruption to the global economy and the Company's business may lead to triggering events indicating that the carrying value of certain assets, such as long-lived assets, intangibles and goodwill, may not be recoverable. Any required non-cash impairment charges will adversely affect the Company's results of operations. +The COVID-19 pandemic may also affect the Company's operating and financial results in a manner that is not presently known to the Company or that the Company does not currently believe presents significant risks to its operations. +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability +12 +to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated and associate its brands with styles that are no longer popular, which would decrease demand for its products. Such failures could result in reduced sales, excess inventory, trade name impairments, lower gross margin and other adverse impacts on the Company’s operating results. +Significant capacity constraints, production disruptions, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. The Company may experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Other adverse developments, such as the COVID-19 pandemic, could cause significant production and shipping delays. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have an adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success depends on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +13 +The Company’s consumer-direct operations continue to require, substantial investment and commitment of resources and are subject to numerous risks, and uncertainties. +The Company’s consumer-direct operations, including its brick and mortar locations as well as its eCommerce and mobile channels, require substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company also has substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs. The success of its consumer-direct operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as damage its reputation and brands, and could have an adverse effect on the Company’s results of operations and financial position. +The Company’s reputation and competitive position depend on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could be subject to negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any future material interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistics and distribution systems include computer-controlled and automated equipment, which are subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. These operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers or other events over which the Company has no control, such as the COVID-19 pandemic. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity depends upon the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected. +14 +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits of the acquisition on a timely basis or at all; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company may not be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but still incur material costs in connection with an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s international operations may be affected by legal, regulatory, political and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political and economic risks. These include: +• the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• unexpected changes in regulatory requirements; and +• new tariffs or other barriers in some international markets, including China. +The Company is also subject to general political and economic risks in connection with its international operations, including: +• political instability and terrorist attacks; +• differences in business culture; +• different laws governing relationships with employees and business partners; +• changes in diplomatic and trade relationships, including with China; and +• general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States or foreign countries upon the import or export of the Company's products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have an adverse effect on the Company’s business in the future or may require the Company to exit a particular market or significantly modify the Company's current business practices. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, the Company's foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits denominated in foreign currencies are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. The +15 +Company may seek to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, but the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on the Company’s business and results of operations. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• In the wholesale business, sales of footwear depend on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• Changes to the Company's estimated annual tax rate which is based on projections of its domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• The Company's earnings are also sensitive to a number of factors that are beyond the Company’s control, including manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates are based upon their own opinions and are often different from the Company’s estimates or expectations. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s results of operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global, regional or local economic conditions, and how such conditions may impact them. Disposable income and consumer spending may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, inflation, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer spending could adversely affect demand for the Company’s products, which could adversely affect the Company's results of operations. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and consumer-direct footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able, or elect, to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own or license brands with greater name recognition; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences quickly will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are dependent on future weather conditions and its ability to react to changes in weather conditions. +16 +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets affecting the Company's distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could have an adverse impact on the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact the Company's third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet consumers’ demands and, in turn, the Company's results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 170 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts and concerns regarding public health threats, such as the COVID-19 pandemic, have created and may in the future create significant global economic and political uncertainties that may have adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which the Company operates could have an adverse effect on the Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in China or any other market in which the Company operates, or in its industry. +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Financial Risks +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions, including those due to changes in trade relations +17 +between the U.S. and other countries, may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products depends on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, transportation and shipping, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases pigskin hides for its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have an adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on non-cash undistributed earnings that it intends to permanently reinvest in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have an adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. The final determination of any of these examinations could have an adverse effect on the Company’s results of operations and financial position. +An impairment of goodwill or other intangibles could have an adverse impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect the Company’s results of operations, such as the impairment recorded associated with the Sperry trade name recorded in fiscal 2020. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +18 +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and the Company may be unable to satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +Legal and Regulatory Risks +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive depends upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the licensor of any of these license agreements could have an adverse effect on the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations in the countries and territories in which the Company operates and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company's operations have become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could +19 +put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible adverse impact on its financial condition and results of operations. While the Company's insurance coverage may be insufficient to cover all losses and would not remedy damage to the Company's reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Various third parties could also bring actions against the Company alleging health-related or other harm arising from non-compliance. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. For example, regulatory actions, punative class actions lawsuits and individual lawsuits have been filed against the Company alleging claims relating to property damage, remediation and human health effects, among other claims, arising from the Company’s operations, including its handling, storage, treatment, transportation and/or disposal of waste. These claims are discussed in more detail in Note 17 to the consolidated financial statements. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company that might benefit the Company's stockholders. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to replace the majority of the Company's directors and take other corporate actions that may be beneficial to the Company’s stockholders. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could negatively impact the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company strives to comply with all applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating +20 +to the use of data for marketing purposes. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If the Company is not able to comply with any applicable requirements, the Company reputation could be negatively impacted and the Company may be subject to proceedings or actions against it by governmental entities or others. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to ensure it remains in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease which could potentially impact growth. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may require it to undertake remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could impact growth opportunities. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +The Company is also subject to U.S. and international data privacy and cybersecurity laws and regulations, which may impose fines and penalties for noncompliance and may have an adverse effect on the Company's operations. For example, the General Data Protection Regulation ("GDPR"), which applies in all European Union member states introduced new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. GDPR increases our responsibility and potential liability in relation to personal data that we collect, process and transfer, and we have put in place additional mechanisms to ensure compliance with the new data protection rules. Any failure to comply with these rules and related national laws of European Union member states, could lead to government enforcement actions and significant penalties against us, and could adversely affect our business, financial condition, cash flows and results of operations. In addition, the California Consumer Privacy Act (“CCPA”), which became effective January 1, 2020, and limits how we may collect and use personal data. The effects of the CCPA governs the Company's data processing practices and policies. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company's internal control policies and procedures may not protect it from reckless or criminal acts committed by its employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in an adverse effect on the results of operations or financial condition. +Item 1B. Unresolved Staff Comments +None. +Item 2. Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 307,000 square feet in Rockford, Michigan, as well as a leased facility of approximately 117,000 square feet in Waltham, Massachusetts. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center of approximately 468,000 square feet in Howard City, Michigan; a leased distribution center of approximately 268,000 square feet in Ontario, Canada and a leased distribution center of approximately 125,000 square feet in Heerhugowaard, Netherlands. +21 +The Company also leases or owns offices, showrooms and other facilities throughout the U.S., Canada, the United Kingdom, continental Europe, Hong Kong and China to meet its operational requirements. In addition, the Company operates 97 retail stores primarily through leases with various third-party landlords in the U.S. that collectively occupy approximately 266,000 square feet. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. For a discussion of legal matters, see Note 17 to the Company's Consolidated Financial Statements. +Item 4. Mine Safety Disclosures +Not applicable. +Supplemental Item. Information about Executive Officers +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of January 31, 2021. The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, at the pleasure of management. +Name Age Positions held with the Company +Joelle Grunberg 49 President, Global Brand - Sperry +Kyle L. Hanson 55 Senior Vice President, General Counsel and Secretary +Brendan L. Hoffman 52 President +Christopher E. Hufnagel 48 President, Global Brand - Merrell +Michael Jeppesen 61 President, Global Operations Group +Amy M. Klimek 47 Senior Vice President, Global Human Resources +Blake W. Krueger 67 Chairman of the Board, Chief Executive Officer +Michael D. Stornant 54 Senior Vice President, Chief Financial Officer and Treasurer +James D. Zwiers 53 Executive Vice President and President, Global Operations Group +Joelle Grunberg has served the Company as President, Sperry since February 2020. From June 2015 through February 2020, she was President and Chief Executive Officer, Lacoste North and Central America, a global apparel brand and retailer. +Kyle L. Hanson has served the Company as Senior Vice President, General Counsel and Secretary since June 2018. From March 2014 through June 2018, she was Vice President, General Counsel and Corporate Secretary at The Buckle, Inc., a publicly traded footwear and apparel retailer. +Brendan L. Hoffman has served the Company as President since September 2020. From October 2015 through August 2020, he was the Chief Executive Officer and President of Vince Holding Corp., a publicly-traded global apparel brand and retailer. +Christopher E. Hufnagel has served the Company as President, Merrell since September 2019. From July 2018 through September 2019, he served as President, CAT Footwear. From January 2013 through July 2018, he served as Senior Vice President and Head of Corporate Strategy. +Michael Jeppesen has served the Company as President, Global Operations Group since January 2012. From April 2016 through January 2019, he also served as President, Wolverine Heritage Group. As announced in January 2021, Mr. Jeppesen will be retiring in mid-2021. +Amy M. Klimek has served the Company as Senior Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. +Blake W. Krueger has served the Company as Chief Executive Officer and President from April 2007 to January 2010; as Chairman, Chief Executive Officer, and President from January 2010 to September 2020; and as Chairman and Chief Executive Officer from September 2020 to the present. +Michael D. Stornant has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. +22 +James D. Zwiers has served the Company as Executive Vice President since February 2017. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group . In January 2021, Mr. Zwiers succeeded Mr. Jeppesen as President, Global Operations Group. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The number of stockholders of record on February 12, 2021, was 1,073. +A quarterly dividend of $0.10 per share was declared on February 9, 2021. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2021. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +Five-Year Cumulative Total Return Summary +23 +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2020. +Issuer Purchases of Equity Securities +Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (September 27, 2020 to October 31, 2020) +Common Stock Repurchase Program (1) +— $ — — $ 487,440,708 +Employee Transactions (2) +1,586 $ 27.11 +Period 11 (November 1, 2020 to November 28, 2020) +Common Stock Repurchase Program (1) +— $ — — $ 487,440,708 +Employee Transactions (2) +2,031 $ 30.14 +Period 12 (November 29, 2020 to January 2, 2021) +Common Stock Repurchase Program (1) +— $ — — $ 487,440,708 +Employee Transactions (2) +142,531 $ 31.77 +Total for the fourth Quarter Ended January 2, 2021 +Common Stock Repurchase Program (1) +— — $ 487,440,708 +Employee Transactions (2) +146,148 $ 31.70 +(1) On September 11, 2019, the Company’s Board of Directors approved a new common stock repurchase program that authorizes the repurchase of $400.0 million of common stock over a four-year period, incremental to the $113.4 million available for repurchases under the previous program at such time. There have been $26.0 million common stock repurchases after the Board of Director authorization. The annual amount of any stock repurchases is restricted under the terms of the Credit Agreement and senior notes indenture. +(2) Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +Item 6. Selected Financial Data +Five-Year Operating and Financial Summary (1) +Fiscal Year +(In millions, except per share data) 2020 2019 2018 2017 2016 +Summary of Operations +Revenue $ 1,791.1 $ 2,273.7 $ 2,239.2 $ 2,350.0 $ 2,494.6 +Net earnings attributable to Wolverine World Wide, Inc. (136.9) 128.5 200.1 0.3 87.7 +Net earnings per share of common stock: +Basic net earnings (2) +$ (1.70) $ 1.48 $ 2.07 $ — $ 0.90 +Diluted net earnings (2) +(1.70) 1.44 2.05 — 0.89 +Cash dividends declared 0.40 0.40 0.32 0.24 0.24 +Financial Position at Year-End +Total assets $ 2,137.4 $ 2,480.0 $ 2,183.1 $ 2,399.0 $ 2,431.7 +Debt 722.5 798.4 570.5 782.6 820.7 +(1) This summary should be read in conjunction with the consolidated financial statements and the related notes, which are included in Item 8 of this Annual Report on Form 10-K. +(2) Basic earnings per share are based on the weighted average number of shares of common stock outstanding during the year after adjustment for unvested restricted common stock. Diluted earnings per share assume the exercise of dilutive stock options and the vesting of all outstanding restricted stock and units. +24 +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth ” and the Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 170 countries and territories at January 2, 2021, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At January 2, 2021, the Company oper ated 97 re tail stores in the U.S. and Canada an d 37 co nsumer-direct eCommerce sites. +The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2020 and 2019. A discussion of a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2019 and 2018 has been omitted from this Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 28, 2019, filed with the SEC on February 26, 2020. +Impact of COVID-19 +In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. COVID-19 has had a negative effect on the global economy and on the Company’s 2020 operating and financial results. The full financial effects of the COVID-19 pandemic cannot be reasonably estimated at this time due to uncertainty as to its severity and duration. The Company has taken the following proactive and precautionary measures to mitigate known areas of risk and navigate the future environment: +• To increase liquidity and flexibility of the Company’s capital structure, the Company borrowed $171 million in incremental 364-day term loan under its senior credit facility and by the end of the fourth quarter the amount had been repaid, and sold $300 million of 6.375% senior notes (refer to Note 7, “Debt”), delayed most capital projects, suspended share repurchases, implemented select employee furloughs and organizational changes, compensation changes for the Company's management team and Board of Directors, delayed or canceled certain future product purchases across its portfolio of brands, took additional steps to reduce discretionary spending and other expenditures, and initiated conversations with landlords to seek lease concessions. Lease concessions have been received for some of the Company’s leased properties and other discussions are still ongoing. +• The Company temporarily closed all U.S. and Canada retail stores on March 17, 2020. Stores began reopening in May under a phased approach and during the second quarter all stores had reopened with newly instituted health and safety protocols for customers and employees following regulatory guidance and protocols promulgated by health authorities and government officials. During the period stores were closed, the Company’s distribution centers remained open and the Company’s direct on-line channels continued to serve customer demand. +The COVID-19 pandemic has had, and is expected to continue to have, a material adverse impact on the Company’s financial results. Expenses related to the COVID-19 pandemic in fiscal year 2020 include $10.9 million of severance expenses, $8.5 million of credit loss expenses related to accounts receivable, $5.5 million of expenses in connection with the Company's credit facility refinance and an interest rate swap termination, $4.4 million of inventory charges, $3.9 million of air freight charges related to production delays, $3.6 million in connection with facility exit costs and $6.4 million for other costs. +The full nature and extent of the impact of the pandemic on the Company's business will depend on future developments, including, among other things; the continued spread and duration of the pandemic; the negative impact on global and regional economies and economic activity; actions governments, businesses and individuals take in response to the pandemic; the effects of the pandemic, including all of the foregoing, on the Company’s manufacturers, distributors, suppliers, joint venture partners, wholesale customers and other counterparties, and how quickly the global economy and demand for the Company's products recovers after the pandemic subsides. The Company continues to monitor the situation closely . +25 +2020 FINANCIAL OVERVIEW +• Revenue was $1,791.1 million for 2020, representing a decrease of 21.2% compared to the prior year's revenue of $2,273.7 million. The decrease reflects a 19.1% decline from the Michigan Group and a 23.6% decline from the Boston Group. Changes in foreign exchange rates decreased revenue by $0.5 million du ring 2020. Owned eCommerce revenue increased 49.9% during 2020 compared to 2019. +• Gross margin for 2020 was 41.1%, an increase of 50 basis points from 2019. +• The effective tax rate in 2020 was 24.7%, compared to 11.7% in 2019. +• Diluted loss per share for 2020 was $1.70, compared to a diluted earnings per share $1.44 for 2019. +• The Company declared cash dividends of $0.40 per share in 2020 and 2019. +• Cash flow provided by operating activities was $309.1 million and $222.6 million for 2020 and 2019, respectively. +• Compared to the prior year, inventory decreased $105.1 million, or 30.2%. +26 +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +(In millions, except per share data) 2020 2019 Percent Change +Revenue +$ 1,791.1 $ 2,273.7 (21.2) % +Cost of goods sold +1,055.5 1,349.9 (21.8) % +Gross profit +735.6 923.8 (20.4) % +Selling, general and administrative expenses +639.4 669.3 (4.5) % +Impairment of intangible assets 222.2 — — +Environmental and other related costs, net of recoveries 11.1 83.5 (86.7) % +Operating profit (loss) (137.1) 171.0 (180.2) % +Interest expense, net +43.6 30.0 45.3 % +Debt extinguishment, interest rate swap termination, and other costs 5.5 — — +Other income, net (2.1) (4.9) (57.1) % +Earnings (loss) before income taxes (184.1) 145.9 (226.2) % +Income tax expense (benefit) (45.5) 17.0 (367.6) % +Net earnings (loss) (138.6) 128.9 (207.5) % +Less: net earnings (loss) attributable to noncontrolling interests (1.7) 0.4 (525.0) % +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ (136.9) $ 128.5 (206.5) % +Diluted earnings (loss) per share $ (1.70) $ 1.44 (218.1) % +REVENUE +Revenue was $1,791.1 million for 2020, representing a decline of 21.2% compared to the prior year's revenue of $2,273.7 million. The change in revenue reflected a 19.1% decline from the Michigan Group and a 23.6% decline from the Boston Group. The Michigan Group's revenue decline was driven by mid-teens decline from Merrell ® , low-thirties decline from Cat ® , low-teens decline from each of Wolverine ® and Chaco ® , low-twenties decline from Bates ® , mid-thirties decline from Hytest ® , and mid-forties decline from Hush Puppies ® . The Boston Group’s revenue decline was driven by high-thirties decline from Sperry ® and high-twenties decline from each of Keds ® and Kids’. International revenue represented 31.1%, an d 33.7% of total reported revenues in 2020 and 2019 respectively. Changes in foreign exchange rates decreased revenue by $ 0.5 million during 2020. Owned eCommerce revenue increased during 2020 by 49.9% compared to 2019. +GROSS MARGIN +For 2020 , the Company’s gross margin was 41.1%, compared to 40.6% in 2019. The gross margin increase was driven by favorable product mix including higher margin eCommerce revenue (180 basis points) and favorable LIFO adjustment resulting from liquidation of historical LIFO layers from the decline in inventory (15 basis points), partially offset by lower international royalties (75 basis points), incremental tariffs (50 basis points), and higher non-operating costs due to the COVID-19 pandemic (35 basis points). +OPERATING EXPENSES +Operating expenses increased $119.9 million in 2020, to $872.7 million. The increase was driven by the impairment of intangible assets ($222.2 million), higher non-operating costs incurred due to the COVID-19 pandemic ($21.8 million), higher advertising costs ($16.2 million), and higher incentive compensation costs ($7.4 million). These increases were partially offset by lower environmental and other related costs, net of recoveries ($72.4 million), lower selling costs ($35.1 million), lower general and administrative costs ($24.4 million), lower product development costs ($10.3 million), and lower distribution costs ($5.5 million). +INTEREST, OTHER AND TAXES +Net interest expense was $43.6 million in 2020 compared to $30.0 million in 2019. Interest expense increased in the current year due to higher average debt balances in 2020. +The Company incurred a $4.9 million expense in connection with the termination of the interest rate swap and $0.6 million expense in connection with the Company's refinancing activities. +27 +The effective tax rate in 2020 was 24.7%, compared to 11.7% in 2019. The higher effective tax rate in 2020 reflects the positive net impact from one-time discrete items combined with a shift in income between tax jurisdictions with differing tax rates. +Other income was $2.1 million in 2020 compared to $4.9 million in 2019. The decrease was driven by higher non-service pension costs ($2.0 million) and higher losses from equity method investments ($1.3 million), partially offset by higher sublease income ($0.8 million). +REPORTABLE SEGMENTS +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate expenses such as costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. +The reportable segment results for years 2020 and 2019 are as follows: +Fiscal Year +(In millions) 2020 2019 Change Percent Change +REVENUE +Wolverine Michigan Group $ 1,051.0 $ 1,299.7 $ (248.7) (19.1) % +Wolverine Boston Group 696.0 910.9 (214.9) (23.6) % +Other +44.1 63.1 (19.0) (30.1) % +Total +$ 1,791.1 $ 2,273.7 $ (482.6) (21.2) % +OPERATING PROFIT (LOSS) +Wolverine Michigan Group $ 179.9 $ 244.8 $ (64.9) (26.5) % +Wolverine Boston Group 88.1 153.8 (65.7) (42.7) % +Other +1.6 2.9 (1.3) (44.8) % +Corporate +(406.7) (230.5) (176.2) 76.4 % +Total +$ (137.1) $ 171.0 $ (308.1) (180.2) % +Further information regarding the reportable segments can be found in Note 18 to the consolidated financial statements. +Wolverine Michigan Group +The Michigan Group’s revenue decreased $248.7 million, or 19.1%, in 2020 compared to 2019. The decline as driven by mid-teens decline from Merrell ® , low-thirties decline from Cat ® , low-teens decline from each of Wolverine ® and Chaco ® , low-twenties decline from Bates ® , mid-thirties decline from Hytest ® , and mid-forties decline from Hush Puppies ® . The decline across all brands is due to the COVID-19 pandemic, partially offset by eCommerce growth. +The Michigan Group’s operating profit decreased $64.9 million, or 26.5%, in 2020 compared to 2019. The operating profit decline was due to the revenue declines, partially offset by a 70 basis point increase in gross margin and a $30.0 million decrease in selling, general and administrative costs. The increase in gross margin in the current year period was due improved product mix including higher margin eCommerce sales, partially offset by increased tariffs. The decrease in selling, general and administrative expenses in the current year period was due to reductions in employee costs and other discretionary spending in response to the COVID-19 pandemic. +Wolverine Boston Group +The Boston Group’s revenue decreased $214.9 million, or 23.6% , in 2020 compared to 2019. The decline was driven by high-thirties decline from Sperry ® and high-twenties decline from each of Keds ® and Kids’. The decline across all brands is due to the COVID-19 pandemic, partially offset by eCommerce growth. +28 +The Boston Group’s operating profit decreased $65.7 million, or 42.7%, in 2020 compared to 2019. The operating profit decline was due to the revenue declines, partially offset by a 150 basis point increase in gross margin and a $13.2 million decrease in selling, general and administrative costs. The increase in gross margin in the current year period was due improved product mix including higher margin eCommerce sales, partially offset by increased tariffs. The decrease in selling, general and administrative expenses in the current year period was due to reductions in employee costs and other discretionary spending in response to the COVID-19 pandemic. +Other +The Other category's revenue decreased $19.0 million, or 30.1%, in 2020 compared to 2019. The decline is due to high-twenties decline in the performance leathers business due to the COVID-19 pandemic. +Corporate +Corporate expens es increased $176.2 million in 2020 compared to 2019 due to the impairment of the Sperry trade name ($222.2 million) and higher non-operating costs due to the COVID-19 pandemic ($29.3 million), partially offset by lower environmental and other related costs ($72.4 million). Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sperry trade name impairment. +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) 2020 2019 +Cash and cash equivalents $ 347.4 $ 180.6 +Debt 722.5 798.4 +Available Revolving Credit Facility (1) +793.9 434.3 +Net cash provided by operating activities 309.1 222.6 +Net cash provided by (used in) investing activities 6.1 (61.5) +Net cash used in financing activities (154.0) (124.6) +Additions to property, plant and equipment 10.3 34.4 +Depreciation and amortization 32.8 32.7 +(1) Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Credit Facility. +Liquidity +Cash and cash equivalents of $347.4 million as of January 2, 2021 were $166.8 million higher compared to December 28, 2019. The increase is due primarily to cash provided by operating activities of $309.1 million, cash provided by investing activities of $6.1 million, partially offset by net repayments of debt of $72.5 million, cash dividends paid of $33.6 million, share repurchases of $21.0 million, and shares acquired related to employee stock plans of $24.8 million. The Company had $793.9 million of borrowing capacity available under the Revolving Credit Facility as of January 2, 2021. Cash and cash equivalents located in foreign jurisdictions totaled $125.7 million as of January 2, 2021. +Cash flow from operating activities, along with the Revolving Credit Facility capacity, are expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, and pay dividends. +A detailed discussion of environmental remediation costs is found in Note 17 to the Company's Consolidated Financial Statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual affected site. As of January 2, 2021, the Company has a reserve of $101.8 million, of which $23.6 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $78.2 million recorded in other liabilities and expected to be paid over the course of up to 25 years. The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +29 +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during 2020 was higher compared to 2019, due primarily to a decrease in net working capital representing a source of cash of $187.9 million. Working capital balances were favorably impacted by a decrease in inventories of $107.2 million, a decrease in accounts receivable of $64.8 million, an increase in other operating liabilities of $27.9 million, and a decrease in other operating assets of $7.4 million, partially offset by a decrease in accounts payable of $18.9 million. Operating cash flows were favorably impacted by Environmental and other related costs, net of cash payments and recoveries received, of $31.5 million, which included $55.0 million paid by 3M Company during the first quarter of 2020. See Note 17 for additional information regarding this settlement payment. +Investing Activities +The Company made capital expenditures of $10.3 million and $34.4 million in years 2020 and 2019 respectively, for building improvements, new retail stores and information system enhancements. Capital expenditures were lower in 2020 compared to 2019 due to reductions in non-essential capital spending in response to the COVID-19 pandemic. +The Company made a cash investment of $3.5 million and $8.5 million in joint ventures in years 2020 and 2019 respectively. The Company made a contingent consideration payment of $5.5 million during 2020 related to the Saucony ® Italy distributor acquisition. The Company's initial cash payment for the business acquisition was $15.1 million paid in 2019. See Note 19 for additional information regarding the acquisition. The Company received proceeds of $26.8 million from company-owned life insurance policy liquidations. +Financing Activities +On May 5, 2020, the Company entered into a Second Amendment to its senior credit facility. In connection with the Second Amendment, the Company borrowed an incremental $171.0 million in aggregate principal in Incremental Term Loan. The Incremental Term Loan was repaid in full by the end of fiscal 2020. The Amended Senior Credit Facility also includes a $200.0 million term loan facility and a $800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023, that remain unchanged as a result of the Second Amendment. The Amended Senior Credit Facility’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $1,750.0 million, unless certain specified conditions set forth in the Amended Senior Credit Facility are met. Term Loan A requires quarterly principal payments with a balloon payment due on December 6, 2023 +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $800.0 million, which includes a $200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $50.0 million swingline subfacility and a $50.0 million letter of credit subfacility. The Company had no outstanding borrowings under the Revolving Credit Facility and outstanding letters of credit under the Revolving Credit Facility of $6.1 million as of January 2, 2021. The outstanding letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +On May 11, 2020, the Company issued $300.0 million aggregate principal amount of 6.375% senior notes due on May 15, 2025 related interest payments are due semi-annually beginning on November 15, 2020. These senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +As of January 2, 2021, the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company’s debt at January 2, 2021 totaled $722.5 million, compared to $798.4 million at December 28, 2019. The decrease was due to repayments on the Revolving Credit Facility of $360.0 million and scheduled principal payments on Term Loan A of $12.5 million, partially offset by the $300.0 million 6.375% senior notes issued. +The Company has a foreign revolving credit facility with aggregate available borrowin gs of $4.0 million that are uncommitted and, therefore, each borrowing against the applicable facility is subject to approval by the lender. There were no borrowings against this facility at January 2, 2021. +The Company repurchased $21.0 million and $319.2 million of Company common stock in years 2020 and 2019 respectively, under stock repurchase plans. The Company may purchase up to an additional $487.4 million of shares under its existing stock repurchase program which expires in 2023. As part of its strategy to increase liquidity and the flexibility of the Company’s capital structure as a result of the COVID-19 pandemic, the Company temporarily suspended share repurchases in March 2020. In addition to the stock repurchase program activity, the Company acquired $24.8 million and $16.9 million of shares in years +30 +2020 and 2019 respectively, in connection with shares or units withheld to pay employee taxes related to stock-based compensation plans. +The Company declared cash dividends of $0.40 per share for each of fiscal 2020 and 2019. Dividends paid totaled $33.6 million and $33.6 million for 2020 and 2019, respectively. A quarterly dividend of $0.10 per share was declared on February 9, 2021 to shareholders of record on April 1, 2021. +NEW ACCOUNTING STANDARDS +See Note 2 to the Company's Consolidated Financial Statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES +The preparation of the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s consolidated financial statements. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the purchase, shipment or delivery of branded products or to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the year ended January 2, 2021, related to the Company’s contract liabilities, was nominal. +Allowance for Credit Losses +The Company maintains an allowance for credit losses on accounts receivable that represents estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions. +31 +Inventory +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries and certain domestic finished goods inventories. The average cost of inventory is used for finished goods inventories of the Company’s consumer-direct business. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company records an impairment charge equal to the excess of the recorded goodwill over the fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the year for all reporting units. The Company did not recognize any impairment charges for goodwill during years 2020, 2019 and 2018. No impairment charges were recognized for the Company's intangible assets during years 2019 and 2018. In the fourth quarter of 2020, after the completion of the annual impairment testing, the Company recorded a $222.2 million impairment charge for the Sperry trade name. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sperry trade name impairment. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. No impairment charges were recognized for the Company's long-lived assets during years 2020, 2019 and 2018. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope +32 +of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Refer to Note 17, “Litigation and Contingencies” for additional discussion on estimated environmental remediation costs. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed realized or realizable. +Retirement Benefits +The determination of the obligation and expense for retirement benefits depends upon the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans' expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 2.85% at January 2, 2021, compared to 3.60% at December 28, 2019. Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.75% for both fiscal 2020 and 2019. This rate is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +The Company intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore not established a deferred tax liability on that amount of foreign unremitted earnings. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +OFF-BALANCE SHEET ARRANGEMENTS +The Company has no off-balance sheet arrangements as of January 2, 2021. +33 +CONTRACTUAL OBLIGATIONS +As of January 2, 2021, the Company had the following payments under contractual obligations due by period: +(In millions) Total Less than +1 year 1-3 years 3-5 years More than +5 years +Long-term debt obligations (1) +$ 899.6 $ 46.9 $ 242.9 $ 351.5 $ 258.3 +Operating lease obligations +211.1 33.9 51.2 35.8 90.2 +Purchase obligations (2) +550.6 550.6 — — — +Supplemental Executive Retirement Plan +42.2 3.8 8.0 8.3 22.1 +Deferred compensation +1.6 0.4 0.8 0.3 0.1 +Dividends declared +8.3 8.3 — — — +Municipal water improvements (3) +59.8 13.2 46.6 — — +TCJA transition obligation +27.9 0.2 16.1 11.6 — +Minimum royalties +3.5 1.7 1.8 — — +Minimum advertising +13.8 3.3 6.9 3.6 — +Total (4) +$ 1,818.4 $ 662.3 $ 374.3 $ 411.1 $ 370.7 +(1) Includes principal and interest payments on the Company’s long-term debt. Estimated future interest payments on outstanding debt obligations are based on interest rates as of January 2, 2021. Actual cash outflows may differ significantly due to changes in underlying interest rates. +(2) Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) Under the terms of the approved Consent Decree, the Company is obligated to contribute towards the costs of extending municipal water lines, developing a replacement wellfield and making certain improvements to Plainfield Township’s existing water treatment plant, all subject to an aggregate cap of $69.5 million. During 2020, the Company made payments of $9.7 million towards the total cap. Due to the uncertainty of the timing and amounts related to the Company's other environmental remediation costs, they have been excluded from this table. See Note 17 to the Company's Consolidated Financial Statements for additional information. +(4) The total amount of unrecognized tax benefits on the consolidated balance sheet at January 2, 2021 is $5.5 million. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. +Under the provisions of FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Colombia, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Colombian peso, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At January 2, 2021 and December 28, 2019, the Company had outstanding forward currency exchange contracts to purchase +34 +primarily U.S. dollars in the amounts of $250.7 million and $253.6 million, respectively, with maturities ranging up to 538 and 545 days, respectively. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. At January 2, 2021, a weaker U.S. dollar compared to certain foreign currencies, increased the value of these investments in net assets by $10.8 million from their value at December 28, 2019. At December 28, 2019, a weaker U.S. dollar compared to foreign currencies, increased the value of these investments in net assets by $5.4 million from their value at December 29, 2018. The Company has a cross currency swap, which has been designated as a hedge of a net investment in a foreign operation. The hedge had a notional amount of $79.8 million as of January 2, 2021 and will mature on September 1, 2021. +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on the Incremental Term Loan borrowings and any borrowings under the Revolving Credit Facility. The Company’s total variable-rate debt was $180.0 million at January 2, 2021. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $0.7 million. The Company had an interest rate swap arrangement to mitigate interest volatility with regard to variable rate borrowings under the senior credit facility which was terminated during 2020. Refer to Note 11 for additional information on the termination. +The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +35 +Item 8. Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +37 +Consolidated Statements of Comprehensive Income (Loss) +38 +Consolidated Balance Sheets +39 +Consolidated Statements of Cash Flows +41 +Consolidated Statements of Stockholders' Equity +43 +Note 1. Summary of Significant Accounting Policies +45 +Note 2. New Accounting Standards +48 +Note 3. Earnings Per Share +48 +Note 4. Goodwill and Other Intangibles +49 +Note 5. Accounts Receivable +50 +Note 6. Revenue From Contracts With Customers +51 +Note 7. Inventories +52 +Note 8. Debt +52 +Note 9. Property, Plant and Equipment +54 +Note 10. Leases +54 +Note 11. Derivative Financial Instruments +55 +Note 12. Stock-Based Compensation +56 +Note 13. Retirement Plans +59 +Note 14. Income Taxes +61 +Note 15. Accumulated Other Comprehensive Income (Loss) +63 +Note 16. Fair Value Measurements +64 +Note 17. Litigation and Contingencies +65 +Note 18. Business Segments +67 +Note 19. Business Acquisition +69 +Note 20. Quarterly Results of Operations (Unaudited) +70 +Reports of Independent Registered Public Accounting Firm +71 +36 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) 2020 2019 2018 +Revenue $ 1,791.1 $ 2,273.7 $ 2,239.2 +Cost of goods sold 1,055.5 1,349.9 1,317.9 +Gross profit 735.6 923.8 921.3 +Selling, general and administrative expenses 639.4 669.3 654.1 +Impairment of intangible assets 222.2 — — +Environmental and other related costs, net of recoveries 11.1 83.5 15.3 +Operating profit (loss) ( 137.1 ) 171.0 251.9 +Other expenses: +Interest expense, net 43.6 30.0 24.5 +Debt extinguishment, interest rate swap termination, and other costs 5.5 — 0.6 +Other income, net ( 2.1 ) ( 4.9 ) ( 0.6 ) +Total other expenses 47.0 25.1 24.5 +Earnings (loss) before income taxes ( 184.1 ) 145.9 227.4 +Income tax expense (benefit) ( 45.5 ) 17.0 27.1 +Net earnings (loss) ( 138.6 ) 128.9 200.3 +Less: net earnings (loss) attributable to noncontrolling interests ( 1.7 ) 0.4 0.2 +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 136.9 ) $ 128.5 $ 200.1 +Net earnings (loss) per share (see Note 3): +Basic $ ( 1.70 ) $ 1.48 $ 2.07 +Diluted $ ( 1.70 ) $ 1.44 $ 2.05 +See accompanying notes to consolidated financial statements. +37 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income (Loss) +Fiscal Year +(In millions) 2020 2019 2018 +Net earnings (loss) $ ( 138.6 ) $ 128.9 $ 200.3 +Other comprehensive loss net of tax: +Foreign currency translation adjustments 10.6 5.4 ( 20.5 ) +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $(5.2), $0.2 and $1.3 ( 17.6 ) 0.9 14.4 +Reclassification adjustments included in net earnings (loss), net of taxes of $0.4, $(2.2) and $1.3 3.1 ( 7.6 ) 2.5 +Pension adjustments: +Net actuarial loss arising during the period, net of taxes of $(8.0), $(3.9) and $(2.6) ( 30.0 ) ( 14.6 ) ( 9.9 ) +Amortization of prior actuarial losses, net of taxes of $1.4, $0.5 and $0.7 5.2 2.1 2.6 +Settlement loss, net of taxes of $1.5 in 2018 +— — 5.7 +Other comprehensive loss ( 28.7 ) ( 13.8 ) ( 5.2 ) +Less: other comprehensive income (loss) attributable to noncontrolling interests ( 0.2 ) — ( 0.2 ) +Other comprehensive loss attributable to Wolverine World Wide, Inc. ( 28.5 ) ( 13.8 ) ( 5.0 ) +Comprehensive income (loss) ( 167.3 ) 115.1 195.1 +Less: comprehensive income (loss) attributable to noncontrolling interests ( 1.9 ) 0.4 — +Comprehensive income (loss) attributable to Wolverine World Wide, Inc. $ ( 165.4 ) $ 114.7 $ 195.1 +See accompanying notes to consolidated financial statements. +38 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) January 2 , +2021 December 28, +2019 +ASSETS +Current assets: +Cash and cash equivalents +$ 347.4 $ 180.6 +Accounts receivable, less allowances of $33.5 and $26.7 268.3 331.2 +Inventories: +Finished products, net +237.9 342.0 +Raw materials and work-in-process, net +5.2 6.2 +Total inventories +243.1 348.2 +Prepaid expenses and other current assets +45.4 107.1 +Total current assets +904.2 967.1 +Property, plant and equipment: +Gross cost +321.8 325.0 +Accumulated depreciation +( 197.2 ) ( 184.0 ) +Property, plant and equipment, net +124.6 141.0 +Lease right-of-use assets +142.5 160.8 +Other assets: +Goodwill +442.4 438.9 +Indefinite-lived intangibles +382.3 604.5 +Amortizable intangibles, net +73.0 77.8 +Deferred income taxes +3.2 2.9 +Other +65.2 87.0 +Total other assets +966.1 1,211.1 +Total assets +$ 2,137.4 $ 2,480.0 +See accompanying notes to consolidated financial statements. +39 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets – continued +(In millions, except share data) January 2 , +2021 December 28, +2019 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable +$ 185.0 $ 202.1 +Accrued salaries and wages +27.0 20.8 +Other accrued liabilities +150.0 157.9 +Lease liabilities +34.0 34.1 +Current maturities of long-term debt +10.0 12.5 +Borrowings under revolving credit agreements — 360.0 +Total current liabilities +406.0 787.4 +Long-term debt, less current maturities +712.5 425.9 +Accrued pension liabilities +147.0 109.7 +Deferred income taxes +35.5 99.0 +Lease liabilities, noncurrent +130.3 147.2 +Other liabilities +133.1 132.4 +Stockholders’ equity +Wolverine World Wide, Inc. stockholders’ equity: +Common stock – par value $1, authorized 320,000,000 shares; 110,426,769, and 108,329,250 shares issued 110.4 108.3 +Additional paid-in capital +252.6 233.4 +Retained earnings +1,093.3 1,263.3 +Accumulated other comprehensive loss +( 130.6 ) ( 102.1 ) +Cost of shares in treasury; 28,285,274, and 27,181,512 shares ( 764.3 ) ( 736.2 ) +Total Wolverine World Wide, Inc. stockholders’ equity +561.4 766.7 +Noncontrolling interest +11.6 11.7 +Total stockholders’ equity +573.0 778.4 +Total liabilities and stockholders’ equity +$ 2,137.4 $ 2,480.0 +See accompanying notes to consolidated financial statements. +40 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows +Fiscal Year +(In millions) +2020 2019 2018 +OPERATING ACTIVITIES +Net earnings (loss) $ ( 138.6 ) $ 128.9 $ 200.3 +Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: +Depreciation and amortization +32.8 32.7 31.5 +Deferred income taxes +( 56.9 ) ( 9.0 ) 22.1 +Stock-based compensation expense +28.9 24.5 31.2 +Pension contribution +— — ( 60.7 ) +Pension and SERP expense +8.5 5.6 11.8 +Debt extinguishment, interest rate swap termination, and other costs 5.5 — 0.6 +Impairment of intangible assets 222.2 — — +Environmental and other related costs, net of cash payments and recoveries received 31.5 48.8 ( 6.1 ) +Other +( 12.7 ) ( 11.6 ) 4.7 +Changes in operating assets and liabilities: +Accounts receivable +64.8 30.7 ( 95.0 ) +Inventories +107.2 ( 23.8 ) ( 44.5 ) +Other operating assets +7.4 ( 5.4 ) ( 17.8 ) +Accounts payable +( 18.9 ) — 40.6 +Income taxes +( 0.5 ) 3.6 ( 1.9 ) +Other operating liabilities +27.9 ( 2.4 ) ( 19.3 ) +Net cash provided by operating activities 309.1 222.6 97.5 +INVESTING ACTIVITIES +Business acquisition, net of cash acquired +( 5.5 ) ( 15.1 ) — +Additions to property, plant and equipment +( 10.3 ) ( 34.4 ) ( 21.7 ) +Proceeds from sale of a business and other assets +0.2 — 2.2 +Investment in joint ventures +( 3.5 ) ( 8.5 ) — +Proceeds from company-owned life insurance policies 26.8 — — +Other +( 1.6 ) ( 3.5 ) ( 2.7 ) +Net cash provided by (used in) investing activities 6.1 ( 61.5 ) ( 22.2 ) +FINANCING ACTIVITIES +Payments under revolving credit agreements ( 898.0 ) ( 469.3 ) ( 27.7 ) +Borrowings under revolving credit agreements 538.0 704.3 152.2 +Borrowings of long-term debt +471.0 — 200.0 +Payments on long-term debt +( 183.5 ) ( 7.5 ) ( 538.2 ) +Payments of debt issuance and debt extinguishment costs +( 6.4 ) ( 0.3 ) ( 2.7 ) +Termination of interest rate swap ( 7.3 ) — — +Cash dividends paid +( 33.6 ) ( 33.6 ) ( 28.6 ) +Purchase of common stock for treasury +( 21.0 ) ( 319.2 ) ( 174.7 ) +Employee taxes paid under stock-based compensation plans +( 24.8 ) ( 16.9 ) ( 8.8 ) +Proceeds from the exercise of stock options +9.8 12.2 24.0 +Contributions from noncontrolling interests +1.8 5.7 — +Net cash used in financing activities ( 154.0 ) ( 124.6 ) ( 404.5 ) +Effect of foreign exchange rate changes +5.6 1.0 ( 8.7 ) +Increase (decrease) in cash and cash equivalents 166.8 37.5 ( 337.9 ) +Cash and cash equivalents at beginning of the year +180.6 143.1 481.0 +Cash and cash equivalents at end of the year +$ 347.4 $ 180.6 $ 143.1 +See accompanying notes to consolidated financial statements. +41 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows – continued +Fiscal Year +(In millions) +2020 2019 2018 +OTHER CASH FLOW INFORMATION +Interest paid +$ 41.4 $ 32.4 $ 29.0 +Net income taxes paid +8.6 23.2 17.4 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid 0.9 0.8 1.3 +Business acquisition not yet paid — 5.5 — +See accompanying notes to consolidated financial statements. +42 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at December 30, 2017 $ 106.4 $ 149.2 $ 992.2 $ ( 75.2 ) $ ( 223.0 ) $ 5.6 $ 955.2 +Net earnings 200.1 0.2 200.3 +Other comprehensive loss ( 5.0 ) ( 0.2 ) ( 5.2 ) +Shares forfeited, net of shares issued under stock incentive plans (154,084 shares) ( 0.2 ) ( 1.7 ) ( 1.9 ) +Shares issued for stock options exercised, net (1,357,841 shares) 1.4 22.6 24.0 +Stock-based compensation expense +31.2 31.2 +Cash dividends declared ($0.32 per share) ( 30.7 ) ( 30.7 ) +Issuance of treasury shares (7,761 shares) 0.1 0.2 0.3 +Purchase of common stock for treasury (5,349,262 shares) ( 174.7 ) ( 174.7 ) +Purchases of shares under stock-based compensation plans (219,039 shares) ( 6.9 ) ( 6.9 ) +Change in accounting principle 8.1 ( 8.1 ) $ — +Balance at December 29, 2018 $ 107.6 $ 201.4 $ 1,169.7 $ ( 88.3 ) $ ( 404.4 ) $ 5.6 $ 991.6 +Net earnings 128.5 0.4 128.9 +Other comprehensive income (loss) ( 13.8 ) — ( 13.8 ) +Shares issues, net of shares forfeited under stock incentive plans (38,655 shares) 0.1 ( 4.2 ) ( 4.1 ) +Shares issued for stock options exercised, net (681,389 shares) 0.6 11.6 12.2 +Stock-based compensation expense +24.5 24.5 +Cash dividends declared ($0.40 per share) ( 34.9 ) ( 34.9 ) +Issuance of treasury shares (7,460 shares) 0.1 0.2 0.3 +Purchase of common stock for treasury (10,914,965 shares) ( 319.2 ) ( 319.2 ) +Purchases of shares under stock-based compensation plans (368,326 shares) ( 12.8 ) ( 12.8 ) +Capital contribution from noncontrolling interests 5.7 5.7 +Balance at December 28, 2019 $ 108.3 $ 233.4 $ 1,263.3 $ ( 102.1 ) $ ( 736.2 ) $ 11.7 $ 778.4 +See accompanying notes to consolidated financial statements. +43 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at December 28, 2019 $ 108.3 $ 233.4 $ 1,263.3 $ ( 102.1 ) $ ( 736.2 ) $ 11.7 $ 778.4 +Net loss ( 136.9 ) ( 1.7 ) ( 138.6 ) +Other comprehensive loss ( 28.5 ) ( 0.2 ) ( 28.7 ) +Shares issued, net of shares forfeited under stock incentive plans (1,497,478 shares) 1.5 ( 19.0 ) ( 17.5 ) +Shares issued for stock options exercised, net (600,041 shares) 0.6 9.3 9.9 +Stock-based compensation expense +28.9 28.9 +Cash dividends declared ($0.40 per share) ( 33.1 ) ( 33.1 ) +Issuance of treasury shares (5,479 shares) — 0.2 0.2 +Purchase of common stock for treasury (877,624 shares) ( 21.0 ) ( 21.0 ) +Purchases of shares under stock-based compensation plans (231,617 shares) ( 7.3 ) ( 7.3 ) +Capital contribution from noncontrolling interests 1.8 1.8 +Balance at January 2, 2021 $ 110.4 $ 252.6 $ 1,093.3 $ ( 130.6 ) $ ( 764.3 ) $ 11.6 $ 573.0 +See accompanying notes to consolidated financial statements. +44 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years 2020, 2019 and 2018 +1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids’ footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® and Wolverine ® . The Company’s products are marketed worldwide through owned operations, through licensing and distribution arrangements with third parties, and through joint ventures. The Company also operates retail stores and eCommerce sites to market both its own brands and branded footwear and apparel from other manufacturers, and has a leathers division that markets Wolverine Performance Leathers™ . +Principles of Consolidation and Basis of Presentation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +The COVID-19 pandemic, the duration and severity of which is subject to uncertainty, has had and continues to have, a significant impact on the Company's business. Management's estimates and assumptions used in the preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP take into account both current and expected potential future impacts of the COVID-19 pandemic on the Company’s business based on available information. Actual results may differ materially from management’s estimates. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal year 2020 had 53 weeks, and fiscal years 2019 and 2018 each had 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +The Company recognizes revenue in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers . Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations and recognizes revenue upon completion of the performance obligation. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The shipment of goods, or point of purchase for retail store sales, was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. +Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the goods transfers to the customer as fulfillment activities. +Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract +45 +liabilities) on the consolidated balance sheets. Generally, billing occurs commensurate to revenue recognition resulting in contract assets. See Note 6 for additional information. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 135.6 million, $ 119.4 million and $ 120.8 million for fiscal years 2020, 2019 and 2018, respectively. Prepaid advertising totaled $ 1.2 million and $ 3.7 million as of January 2 , 2021 and December 28, 2019, respectively. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates fair value. +Allowance for Credit Losses +The Company maintains an allowance for credit losses on accounts receivable that represents estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions. +Inventories +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries and certain domestic finished goods inventories. The average cost of inventory is used for finished goods inventories of the Company’s consumer-direct business. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for buildings, leasehold improvements, furniture and fixtures, material handling systems, equipment and computer hardware and software. Normal repairs and maintenance are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings, from 5 to 15 years for leasehold improvements, from 3 to 10 years for furniture, fixtures and equipment and from 3 to 5 years for software. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to +46 +have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. The Company includes assumptions about expected future operating performance as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value. Goodwill and indefinite-lived intangibles are considered impaired if the recorded value exceeds the fair value. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. The Company would not be required to quantitatively determine the fair value of the indefinite-lived intangible unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. Future cash flows of the individual indefinite-lived intangible assets are used to measure their fair value after consideration by management of certain assumptions, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year. See Note 4 for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed realized or realizable. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 13 for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. +47 +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benef it is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. T he Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2020, 2019 and 2018. +2. NEW ACCOUNTING STANDARDS +The Financial Accounting Standards Board (“FASB”) issued the following ASUs that have been adopted by the Company during fiscal 2020. The following is a summary of the effect of adoption of these new standards. +Standard Description Effect on the Financial Statements or Other Significant Matters +ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments +Seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. +The Company adopted ASU 2016-13 at the beginning of the first quarter on a prospective basis. The Company adjusted its business policies and processes relating to the measurement of allowances for credit losses to consider reasonable and supportable information to determine expected credit losses on accounts receivable. The adoption of the ASU did not have a material effect on the consolidated financial statements. +ASU 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment Eliminates step two of the goodwill impairment test under legacy US GAAP. Annual and interim goodwill impairment tests are performed by comparing the fair value of a reporting unit with its carrying amount and the amount by which the carrying amount exceeds the reporting unit’s fair value will be recognized as an impairment charge. The Company adopted the ASU at the beginning of the first quarter on a prospective basis. The adoption of the ASU did not have a significant impact on the Company’s financial statements and all prospective impairment tests will be completed under this standard. +3. EARNINGS PER SHARE +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +48 +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) 2020 2019 2018 +Numerator: +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 136.9 ) $ 128.5 $ 200.1 +Less: net earnings attributed to participating share-based awards +( 0.8 ) ( 2.6 ) ( 7.5 ) +Net earnings (loss) used to calculate basic earnings per share ( 137.7 ) 125.9 192.6 +Adjustment for earnings reallocated to participating share-based awards — 0.1 1.8 +Net earnings (loss) used to calculate diluted earnings per share $ ( 137.7 ) $ 126.0 $ 194.4 +Denominator: +Weighted average shares outstanding +81.8 85.7 94.8 +Adjustment for unvested restricted common stock +( 0.8 ) ( 0.6 ) ( 1.8 ) +Shares used to calculate basic earnings per share +81.0 85.1 93.0 +Effect of dilutive share-based awards +— 2.1 2.0 +Shares used to calculate diluted earnings per share +81.0 87.2 95.0 +Net earnings (loss) per share: +Basic +$ ( 1.70 ) $ 1.48 $ 2.07 +Diluted +$ ( 1.70 ) $ 1.44 $ 2.05 +For fiscal years 2020, 2019 and 2018, 1,179,088 , 133,505 and 25,230 outstanding stock options, respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of January 2 , 2021 or December 28, 2019. The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company repurchased $ 21.0 million, $ 319.2 million and $ 174.7 million of Company common stock in fiscal years 2020, 2019 and 2018, respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 24.8 million, $ 16.9 million and $ 8.8 million of Company common stock in fiscal years 2020, 2019 and 2018, respectively, in connection with employee transactions related to stock incentive plans. +On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to amounts remaining under the previous repurchase program. The annual amount of stock repurchases is restricted under the terms of the Company's Credit Agreement. +4. GOODWILL AND OTHER INTANGIBLE ASSETS +The changes in the carrying amount of goodwill are as follows: +Fiscal Year +(In millions) 2020 2019 +Goodwill balance at beginning of the year $ 438.9 $ 424.4 +Acquisition of a business (see Note 19) — 12.0 +Foreign currency translation effects 3.5 2.5 +Goodwill balance at end of the year $ 442.4 $ 438.9 +The Company did not recognize any goodwill impairment charges during fiscal years 2020, 2019 and 2018. The annual impairment testing indicated, for all reporting units tested quantitatively, that the fair values exceeded the respective carrying values. For the reporting units that the Company elected to test qualitatively, the Company concluded it to be more likely than not that their estimated fair values are greater than their respective carrying values. +The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 382.3 million and $ 604.5 million as of January 2 , 2021 and December 28, 2019, respectively. In the fourth quarter of fiscal 2020, after the completion of the annual impairment testing, the Company recognized a $ 222.2 million impairment charge for the Sperry ® +49 +trade name resulting from reductions in the future cash flow assumptions mainly due to the impact of the COVID-19 pandemic to the Sperry ® brand and an increase in the discount rate. The Sperry ® trade name was valued using the income approach, specifically the multi-period excess earnings method with the key assumptions used in the valuation being revenue growth, operating profit, and the discount rate. If the operating results for Sperry ® decline in future periods compared to current projections, the discount rate increases, increases in the assumed tax rate, or macroeconomic conditions deteriorate further due to the COVID-19 pandemic and adversely affect the value of the Company’s Sperry ® trade name balance, the Company may need to record additional non-cash impairment charges. The Company continues to monitor the effects of the COVID-19 pandemic, and actions taken by governments, businesses and individuals in response to the pandemic, on the global economy to assess the outlook for demand for the Company's products and the impact on the Company's business and financial performance. The carrying value of the Company’s Sperry ® trade name indefinite-lived intangible asset was $ 296.0 million as of January 2 , 2021. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows: +January 2 , 2021 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 114.5 $ 44.9 $ 69.6 12 +Other 18.7 15.3 3.4 3 +Total $ 133.2 $ 60.2 $ 73.0 +December 28, 2019 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 113.3 $ 38.8 $ 74.5 13 +Other 17.3 14.0 3.3 3 +Total $ 130.6 $ 52.8 $ 77.8 +Amortization expense for these amortizable intangible assets was $ 7.1 million, $ 8.6 million and $ 6.2 million for fiscal years 2020, 2019 and 2018, respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to January 2 , 2021 is as follows: +(In millions) 2021 2022 2023 2024 2025 +Amortization expense $ 7.1 $ 6.8 $ 6.6 $ 6.3 $ 6.0 +5. ACCOUNTS RECEIVABLE +The Company has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis that expires in the fourth quarter of fiscal 2021. Under the agreement, up to $ 75.0 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheet, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability for all periods presented. For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. +The following is a summary of the stated amount of accounts receivable that was sold as well as fees charged by the financial institution. +Fiscal Year +(In millions) 2020 2019 2018 +Accounts receivable sold +$ 14.1 $ 42.7 $ 264.3 +Fees charged +0.1 0.2 1.3 +The fees are recorded in the other expense (income), net line item on the consolidated statements of operations. Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows. The amounts outstanding under this program were $ 0.0 million and $ 33.9 million as of January 2 , 2021 and December 28, 2019, respectively. +50 +6. REVENUE FROM CONTRACTS WITH CUSTOMERS +Revenue Recognition and Performance Obligations +The Company has agreements to license symbolic intellectual property with minimum guarantees or fixed consideration. The Company is due $ 26.4 million of remaining fixed transaction price under its license agreements as of January 2 , 2021, which it expects to recognize per the terms of its contracts over the course of time through December 2024 . The Company has elected to omit the remaining variable consideration under its license agreements given the Company recognizes revenue equal to what it has the right to invoice and that amount corresponds directly with the value to the customer of the Company’s performance to date. +The Company provides disaggregated revenue for the wholesale and consumer-direct sales channels, which are reconciled to the Company’s reportable segments. The wholesale channel includes royalty revenues, which operates in a similar manner as other wholesale revenues due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation. +Fiscal Year +(in millions) 2020 2019 2018 +Wolverine Michigan Group: +Wholesale $ 814.2 $ 1,134.9 $ 1,129.2 +Consumer-direct 236.8 164.8 143.0 +Total 1,051.0 1,299.7 1,272.2 +Wolverine Boston Group: +Wholesale 508.9 743.4 762.0 +Consumer-direct 187.1 167.5 133.5 +Total 696.0 910.9 895.5 +Other: +Wholesale 40.5 57.9 64.1 +Consumer-direct 3.6 5.2 7.4 +Total 44.1 63.1 71.5 +Total revenue $ 1,791.1 $ 2,273.7 $ 2,239.2 +Reserves for Variable Consideration +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, the revenue recognized by the Company, net of these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during fiscal years 2020 and 2019, related to the Company’s contract liabilities, was nominal. +The Company’s contract balances are as follows: +(In millions) January 2 , +2021 December 28, +2019 +Product returns reserve $ 15.6 $ 11.4 +Customer markdowns reserve 3.7 4.4 +Other sales incentives reserve 6.0 2.3 +Customer rebates liability 13.4 12.0 +Customer advances liability 8.2 7.2 +The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the +51 +contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from initial estimates. If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. +Product Returns +Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and a reduction to trade receivables, net on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. +Customer Markdowns +Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. +Other Sales Incentives +The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. +Customer Rebates +The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. +Customer Advances +The Company recognizes a liability for amounts received from customers before revenue is recognized. Customer advances are recognized as a current liability on the consolidated balance sheets. +7. INVENTORIES +The Company used the LIFO method to value inventories of $ 35.6 million and $ 81.2 million at January 2 , 2021 and December 28, 2019, respectively. During fiscal years 2020 and 2019, a reduction in inventory quantities resulted in a liquidation of applicable LIFO inventory quantities carried at lower costs in prior years. This LIFO liquidation decreased cost of goods sold by $ 3.9 million and $ 0.4 million, respectively. If the FIFO method had been used, inventories would have been $ 7.5 million and $ 11.4 million higher than reported at January 2 , 2021 and December 28, 2019, respectively. +8. DEBT +Total debt consists of the following obligations: +(In millions) January 2 , +2021 December 28, +2019 +Term Loan A, due December 6, 2023 $ 180.0 $ 192.5 +Senior Notes, 5.000% interest, due September 1, 2026 250.0 250.0 +Senior Notes, 6.375% interest, due May 15, 2025 300.0 — +Borrowings under revolving credit agreements — 360.0 +Unamortized deferred financing costs ( 7.5 ) ( 4.1 ) +Total debt $ 722.5 $ 798.4 +On May 5, 2020, the Company entered into a Second Amendment (the “Amendment”) which amended its senior credit facility, which had previously been amended and restated as of December 6, 2018 (as so amended by the Amendment, the “Amended Senior Credit Facility”). In connection with the Amendment, the Company borrowed $ 171.0 million in aggregate principal amount of an incremental term loan (the “Incremental Term Loan”). The Incremental Term Loan was fully repaid by the end of fiscal 2020. +52 +The Amended Senior Credit Facility also includes a $ 200.0 million term loan facility (“Term Loan A”) and an $ 800.0 million Revolving Credit Facility, both with maturity dates of December 6, 2023, that remain unchanged as a result of the Amendment. The Amended Senior Credit Facility’s debt capacity is limited to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 1,750.0 million, unless certain specified conditions set forth in the Credit Agreement are met. Term Loan A requires quarterly principal payments with a balloon payment due on December 6, 2023. The scheduled principal payments due over the next 12 months total $ 10.0 million as of January 2 , 2021 and are recorded as current maturities of long-term debt on the consolidated balance sheets. +The Revolving Credit Facility allows the Company to borrow up to an aggregate amount of $ 800.0 million, which includes a $ 200.0 million foreign currency subfacility under which borrowings may be made, subject to certain conditions, in Canadian dollars, British pounds, euros, Hong Kong dollars, Swedish kronor, Swiss francs and such additional currencies as are determined in accordance with the Credit Agreement. The Revolving Credit Facility also includes a $ 50.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company also had outstanding letters of credit under the Revolving Credit Facility of $ 6.1 million and $ 5.7 million as of January 2 , 2021 and December 28, 2019, respectively. These outstanding borrowings and letters of credit reduce the borrowing capacity under the Revolving Credit Facility. +The interest rates applicable to amounts outstanding under Term Loan A and to U.S. dollar denominated amounts outstanding under the Revolving Credit Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125 % to 1.000 %, or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125 % to 2.000 % (all capitalized terms used in this sentence are as defined in the Credit Agreement). At January 2 , 2021, Term Loan A had weighted-average interest rate of 2.00 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Amended Senior Credit Facility also contains certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Amended Senior Credit Facility requires compliance with the following financial covenants: a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Amended Senior Credit Facility). As of January 2 , 2021, the Company was in compliance with all covenants and performance ratios under the Amended Senior Credit Facility. +On May 11, 2020 the Company issued $ 300.0 million aggregate principal amount of 6.375 % senior notes due on May 15, 2025. Related interest payments are due semi-annually beginning on November 15, 2020. These senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries +The Company has $ 250.0 million of senior notes outstanding that are due on September 1, 2026. These senior notes bear interest at 5.00 % and related interest payments are due semi-annually. The Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company has a foreign revolving credit facility with aggregate available borrowing s of $ 4.0 million that are un committed and, therefore, each borrowing against the facility is subject to approval by the lender. As of January 2 , 2021 and December 28, 2019, there were no borrowings against this credit facility. +The Company included in interest expense the amortization of deferred financing costs of $ 2.7 million, $ 1.6 million, and $ 2.8 million in fiscal years 2020, 2019 and 2018, respectively. +Annual maturities of debt for the fiscal years subsequent to January 2 , 2021 are as follows: +(In millions) 2021 2022 2023 2024 2025 Thereafter +Annual maturities of debt +$ 10.0 $ 10.0 $ 160.0 $ — $ 300.0 $ 250.0 +53 +9. PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) January 2 , +2021 December 28, 2019 +Land $ 3.9 $ 3.9 +Buildings and leasehold improvements 119.6 123.2 +Furniture, fixtures and equipment 135.1 136.8 +Software 63.2 61.1 +Gross cost 321.8 325.0 +Less: accumulated depreciation 197.2 184.0 +Property, plant and equipment, net $ 124.6 $ 141.0 +Depreciation expense was $ 25.7 million, $ 24.1 million and $ 25.3 million for fiscal years 2020, 2019 and 2018, respectively. +10. LEASES +Description of Leases +The Company’s leases consist primarily of corporate offices, retail stores, distribution centers, showrooms, vehicles and office equipment. The Company leases assets in the normal course of business to meet its current and future needs while providing flexibility to its operations. The Company enters into contracts with third parties to lease specifically identified assets. Most of the Company’s leases have contractually specified renewal periods. Most retail store leases have early termination clauses that the Company can elect if stipulated sales amounts are not achieved. The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised. +In response to the COVID-19 pandemic and the effect the pandemic had on the Company’s leased properties, the Company has been actively seeking rent relief from its landlords. The Company considered the FASB staff guidance issued in April 2020 in relation to accounting for lease concessions made in connection with the effects of the COVID-19 pandemic and elected to apply the temporary practical expedient to account for rent deferrals and abatements as though the enforceable rights and obligations existed in each contract. Depending on the timing of the future payments, amounts deferred and payable in future periods have been included in “Other accrued liabilities” and “Other liabilities” on the Company’s condensed consolidated balance sheets. The Company continued to recognize lease expense on a straight-line basis for its leases over the related lease terms. +Accounting for Leases +Under FASB ASC Topic 842, Leases , the Company has elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all of its leases. In addition, the Company has elected to account for multiple lease components as a single lease component. The Company’s leases may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease. The Company recognizes variable lease payments when the amounts are incurred and determinable. The Company has elected to account for leases of less than one year as short-term leases and accordingly does not recognize a right-of-use asset or lease liability for these leases. The Company recognizes rent expense on a straight-line basis over the lease term. +The Company subleases certain portions of leased offices and distribution centers that exceed the Company’s current operational needs. Since the Company utilizes the majority of the leased space and retains the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the term of the sublease, and beginning in fiscal 2019, is recognized in other expense (income), net on the consolidated statements of operations. +The Company recognizes a lease liability in current and noncurrent liabilities equal to the present value of the fixed future lease payments using an incremental borrowing rate as of the commencement date of each lease. The incremental borrowing rate is based on an interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments. The weighted-average discount rate for operating leases as of January 2 , 2021 is 5.2 %. The Company also recognizes a right-of-use asset, which is equal to the lease liability as of January 2 , 2021 adjusted for the remaining balance of accrued rent and unamortized lease incentives. +54 +The following is a summary of the Company’s lease cost. +Fiscal Year +(In millions) 2020 2019 +Operating lease cost $ 34.1 $ 32.6 +Variable lease cost 12.3 14.5 +Short-term lease cost 1.2 1.2 +Sublease income ( 4.8 ) ( 4.0 ) +Total lease cost $ 42.8 $ 44.3 +The weighted-average remaining lease term for operating leases as of January 2 , 2021 is 9.5 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to January 2 , 2021 are as follows: +(In millions) Operating Leases +2021 $ 33.9 +2022 29.5 +2023 21.7 +2024 18.3 +2025 17.5 +Thereafter 90.2 +Total future payments 211.1 +Less: imputed interest 46.8 +Recognized lease liability $ 164.3 +The Company made cash payments of $ 28.6 million and $ 33.2 million for operating lease liabilities during fiscal 2020 and 2019, respectively. The Company entered into new or amended leases that resulted in the noncash recognition of right-of-use assets and lease liabilities of $ 6.0 million and $ 26.8 million during fiscal 2020 and 2019, respectively. The Company did not enter into any real estate leases with commencement dates subsequent to January 2 , 2021. +Rental expense under all operating leases, under the previous lease standard ASC 840 and consisting primarily of minimum rentals, totaled $ 32.0 million in fiscal year 2018. The Company recognized sublease income of $ 2.8 million in fiscal year 2018. +11. DERIVATIVE FINANCIAL INSTRUMENTS +The Company follows ASC 815, which requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. +The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extended out to a maximum of 538 days and 545 days as of January 2 , 2021 and December 28, 2019, respectively. When foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) within stockholders’ equity. During fiscal 2020 and 2019, the Company reclassified $ 0.6 million and $ 1.2 million respectively, to other income for foreign currency derivatives that were no longer deemed highly effective. +The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company had an interest rate swap arrangement to mitigate interest volatility with regard to variable rate borrowings under the Amended Senior Credit Facility. The interest rate swap exchanged floating rate for fixed rate interest payments without the exchange of the underlying notional amounts, and had been designated as cash flow hedge of the underlying debt. The arrangement was terminated, effective December 29, 2020, in association with the repayment of the Incremental Term Loan. The fair value of the swap at the termination date of $ 7.3 million was required to be paid in full. Consequently, unrealized losses of $ 4.9 million in accumulated other comprehensive income that were associated with variable rate debt interest +55 +payments that were no longer probable were reclassified to “Debt extinguishment, interest rate swap termination, and other costs“ in the accompanying consolidated statement of operations. +The Company has a cross currency swap to minimize the impact of exchange rate fluctuations. The hedging instrument, which, unless otherwise terminated, will mature on September 1, 2021 , has been designated as a hedge of a net investment in a foreign operation. The Company will pay 2.75 % on the euro-denominated notional amount and receive 5.00 % on the U.S. dollar notional amount, with an exchange of principal at maturity. Changes in fair value related to movements in the foreign currency exchange spot rate are recorded in accumulated other comprehensive income, offsetting the currency translation adjustment related to the underlying net investment that is also recorded in accumulated other comprehensive income. All other changes in fair value are recorded in interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the cross-currency swap and the Company’s investment in its euro-denominated subsidiary, as well as its risk management objective and strategy for undertaking the hedge transaction. This process included linking the derivative to its net investment on the balance sheet. The Company also assessed at the hedge’s inception, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the net investment in the foreign operations. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) January 2 , +2021 December 28, 2019 +Foreign exchange contracts: +Hedge contracts $ 250.7 $ 246.3 +Non-hedge contracts — 7.3 +Interest rate swap — 355.8 +Cross currency swap 79.8 79.8 +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) January 2 , +2021 December 28, 2019 +Financial assets: +Foreign exchange contracts - hedge $ — $ 2.3 +Financial liabilities: +Foreign exchange contracts - hedge $ ( 8.8 ) $ ( 1.8 ) +Interest rate swap — ( 1.8 ) +Cross currency swap ( 10.8 ) ( 3.0 ) +12. STOCK-BASED COMPENSATION +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company recognized compensation expense of $ 28.9 million, $ 24.5 million and $ 31.2 million and related income tax benefits of $ 5.6 million, $ 4.8 million and $ 6.4 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2020, 2019 and 2018, respectively. The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. +As of January 2 , 2021, the Company had 6,060,880 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment. These restrictions typically lapse over a three- to four-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement, death and disability, and upon a change in control of the Company. Awards issued to employees that meet the specified retirement +56 +age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +Restricted Awards and Performance Awards +A summary of the unvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards Weighted- +Average +Grant Date +Fair Value Performance +Awards Weighted- +Average +Grant Date +Fair Value +Unvested at December 30, 2017 2,025,072 $ 21.70 1,690,668 $ 21.54 +Granted 609,276 31.81 384,657 35.10 +Vested ( 560,263 ) 22.93 ( 229,023 ) 26.64 +Forfeited ( 153,712 ) 23.81 ( 215,284 ) 26.18 +Unvested at December 29, 2018 1,920,373 $ 24.38 1,631,018 $ 23.42 +Granted 554,092 34.73 370,830 37.10 +Vested ( 681,938 ) 24.63 ( 654,021 ) 17.46 +Forfeited ( 173,611 ) 28.47 ( 220,725 ) 19.74 +Unvested at December 28, 2019 1,618,916 $ 27.36 1,127,102 $ 31.94 +Granted 1,416,117 22.59 455,207 34.00 +Vested ( 1,122,811 ) 22.07 ( 451,334 ) 23.51 +Forfeited ( 268,205 ) 29.67 ( 125,653 ) 35.91 +Unvested at January 2, 2021 1,644,017 $ 26.39 1,005,322 $ 35.25 +As of January 2 , 2021, there was $ 18.5 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-avera ge period of 1.5 years. The total fair value of Restricted Awards vested during the year ended January 2 , 2021 was $ 35.0 million. As of December 28, 2019, there was $ 19.9 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Awards vested during the year ended December 28, 2019 was $ 23.7 million. As of December 29, 2018, there was $ 20.2 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended December 29, 2018 was $ 17.4 million. +As of January 2 , 2021, there was $ 1.4 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.4 years. The total fair value of Performance Awards vested during the year ended January 2 , 2021 was $ 28.0 million. As of December 28, 2019, there was $ 4.5 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.1 years. The total fair value of Performance Awards vested during the year ended December 28, 2019 was $ 22.8 million. As of December 29, 2018, there was $ 19.0 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weig hted-average period of 1.7 years. The total fair value of Performance Awards vested during the year ended December 29, 2018 was $ 7.3 million. +57 +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $ 8.20 , $ 9.07 and $ 8.20 per share for fiscal years 2020, 2019 and 2018, respectively, with the following weighted-average assumptions. +Fiscal Year +2020 2019 2018 +Expected market price volatility (1) +31.2 % 29.6 % 29.6 % +Risk-free interest rate (2) +1.5 % 2.5 % 2.5 % +Dividend yield (3) +1.2 % 1.0 % 0.8 % +Expected term (4) +4 years 4 years 4 years +(1) Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant. +(2) Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant . +(3) Represents the Company’s estimated cash dividend yield for the expected term. +(4) Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior. +A summary of the stock option transactions is as follows: +Shares Under Option Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at December 30, 2017 6,089,664 $ 20.05 5.8 $ 72.1 +Granted 28,171 31.85 +Exercised ( 1,359,387 ) 17.69 +Canceled ( 56,446 ) 17.12 +Outstanding at December 29, 2018 4,702,002 $ 20.83 5.2 $ 54.5 +Granted 25,471 34.81 +Exercised ( 681,389 ) 17.87 +Canceled ( 12,977 ) 23.97 +Outstanding at December 28, 2019 4,033,107 $ 21.41 4.4 $ 49.8 +Granted 28,171 32.85 +Exercised ( 788,883 ) 18.39 +Canceled ( 12,990 ) 25.39 +Outstanding at January 2, 2021 3,259,405 $ 22.22 3.9 $ 29.7 +Unvested at January 2, 2021 ( 54,541 ) +Exercisable at January 2, 2021 3,204,864 $ 22.03 3.8 $ 29.7 +The total pretax intrinsic value of stock options exercised during fiscal years 2020, 2019 and 2018 was $ 9.3 million, $ 10.7 million and $ 21.2 million, respectively. As of January 2 , 2021, there was $ 0.1 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 0.9 years. As of December 28, 2019 and December 29, 2018, there was $ 0.2 million and $ 0.4 million, respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.4 years and 0.8 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price o f the Company's stock was above the strike price ("in-the-money"), as of that date. The total number of in-the-money options exercisable as of January 2 , 2021, based on the Company’s closing stock price of $ 31.25 per share, was 3,096,685 and the weighted-average exercise price was $ 21.66 per share . As of December 28, 2019, 3,974,757 outstanding options were exercisable and in-the-money, with a weighted-average exercise price of $ 21.29 per share. +58 +13. RETIREMENT PLANS +The Company has two non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The second plan is closed to new participants and no longer accrue future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company following retirement, generally for the duration of their lives. The Company maintains life insurance policies with a cash surrender value of $ 44.0 million at January 2 , 2021 and $ 66.8 million at December 28, 2019 that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for discretionary Company contributions based on the amount of participant deferrals. The Company recognized expense for its contributions to the defined contribution plans of $ 4.2 million, $ 5.2 million and $ 4.5 million in fiscal years 2020, 2019 and 2018, respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.3 million, $ 1.1 million and $ 1.1 million in fiscal years 2020, 2019 and 2018, respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 1.0 million at January 2 , 2021 and $ 0.9 million at December 28, 2019 and was recognized as a deferred compensation liability on the consolidated balance sheets. +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2020 and 2019: +Fiscal Year +(In millions) 2020 2019 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ 401.0 $ 348.8 +Service cost pertaining to benefits earned during the year +6.4 5.5 +Interest cost on projected benefit obligations +14.2 15.2 +Actuarial losses 48.1 45.4 +Benefits paid to plan participants +( 13.9 ) ( 13.9 ) +Projected benefit obligations at end of the year +$ 455.8 $ 401.0 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ 287.6 $ 254.4 +Actual return on plan assets 28.8 44.7 +Company contributions - SERP +2.5 2.4 +Benefits paid to plan participants +( 13.9 ) ( 13.9 ) +Fair value of pension assets at end of the year +$ 305.0 $ 287.6 +Funded status +$ ( 150.8 ) $ ( 113.4 ) +Amounts recognized in the consolidated balance sheets: +Current liabilities +$ ( 3.8 ) $ ( 3.7 ) +Noncurrent liabilities +( 147.0 ) ( 109.7 ) +Net amount recognized +$ ( 150.8 ) $ ( 113.4 ) +Funded status of pension plans and SERP (supplemental): +Funded status of qualified defined benefit plans and SERP +$ ( 150.8 ) $ ( 113.4 ) +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations 36.6 59.6 +Net funded status of pension plans and SERP (supplemental) +$ ( 114.2 ) $ ( 53.8 ) +59 +Unrecognized net actuarial loss recognized in accumulated other comprehensive income was $ 92.8 million and $ 61.4 million, and amounts net of tax were $ 73.5 million and $ 48.7 million, as of January 2 , 2021 and December 28, 2019, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 430.2 million at January 2 , 2021 and $ 378.4 million at December 28, 2019 . The increase in benefit obligation for fiscal 2020 was the result of actuarial losses caused by changes to the discount rate. The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during fiscal 2021 is $ 13.8 million. +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) 2020 2019 2018 +Service cost pertaining to benefits earned during the year $ 6.4 $ 5.5 $ 6.3 +Interest cost on projected benefit obligations 14.2 15.2 16.5 +Expected return on pension assets ( 18.7 ) ( 17.7 ) ( 21.5 ) +Net amortization loss 6.6 2.6 3.3 +Settlement loss — — 7.2 +Net pension expense $ 8.5 $ 5.6 $ 11.8 +Less: SERP expense 5.2 5.4 5.5 +Qualified defined benefit pension plans expense $ 3.3 $ 0.2 $ 6.3 +During fiscal 2018, the Company completed a pension annuity purchase, which settled $ 66.6 million of projected benefit obligations. The Company recognized a settlement loss of $ 7.2 million due to the annuity purchase. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2020 2019 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +2.85 % 3.60 % +Rate of compensation increase - pension +4.18 % 4.23 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +3.60 % 4.46 % +Expected long-term rate of return on plan assets +6.75 % 6.75 % +Rate of compensation increase - pension +4.23 % 3.82 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five-year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and the service and interest cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of January 2 , 2021 were 57 % in equity securities, 38 % in fixed income securities and 5 % in real estate investments. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset +60 +allocations by asset category and fair value measurement are as follows: +January 2 , 2021 December 28, 2019 +(In millions) Total % of Total Total % of Total +Equity securities $ 173.3 +1 +56.8 % $ 162.2 +1 +56.4 % +Fixed income securities 112.7 +1 +37.0 % 106.2 +1 +36.9 % +Real estate investments 16.7 +1 +5.5 % 16.9 +1 +5.9 % +Other 2.3 +2 +0.7 % 2.3 +2 +0.8 % +Fair value of plan assets $ 305.0 100.0 % $ 287.6 100.0 % +1 In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +2 In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 16 for additional information. +The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2021 and expects to make $ 3.8 million in contributions to the SERP in fiscal 2021. +Expected benefit payments for the fiscal years subsequent to January 2 , 2021 are as follows: +(In millions) 2021 2022 2023 2024 2025 2026-2030 +Expected benefit payments $ 16.4 $ 17.1 $ 17.8 $ 18.6 $ 19.3 $ 105.7 +14. INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) 2020 2019 2018 +United States $ ( 218.6 ) $ 79.3 $ 159.2 +Foreign 34.5 66.6 68.2 +Earnings (loss) before income taxes $ ( 184.1 ) $ 145.9 $ 227.4 +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) 2020 2019 2018 +Current expense: +Federal $ 0.7 $ 10.6 $ 6.7 +State 0.6 0.5 2.4 +Foreign 8.3 12.5 10.9 +Deferred expense (credit): +Federal ( 51.6 ) ( 5.8 ) 2.1 +State ( 4.4 ) ( 2.0 ) 3.3 +Foreign 0.9 1.2 1.7 +Income tax provision $ ( 45.5 ) $ 17.0 $ 27.1 +61 +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: +Fiscal Year +(In millions) 2020 2019 2018 +Income taxes at U.S. statutory rate of 21% $ ( 38.7 ) $ 30.6 $ 47.7 +State income taxes, net of federal income tax ( 8.1 ) 0.5 2.8 +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong ( 3.3 ) ( 8.5 ) ( 10.8 ) +Other 1.2 2.8 ( 3.1 ) +Adjustments for uncertain tax positions ( 1.4 ) ( 1.0 ) ( 1.4 ) +Change in valuation allowance 4.7 ( 0.2 ) 3.3 +Change in state tax rates — ( 1.5 ) 1.9 +Global Intangible Low Tax Income tax 2.5 2.1 3.7 +Foreign Derived Intangible Income tax benefit ( 1.6 ) ( 4.4 ) ( 6.8 ) +Non-deductible executive compensation 1.6 2.0 0.9 +Permanent adjustments related to employee share based compensation ( 4.6 ) ( 5.1 ) ( 3.8 ) +Deferred tax on future cash dividends 1.0 0.6 ( 0.9 ) +Other Permanent adjustments and non-deductible expenses 1.0 ( 0.6 ) ( 6.7 ) +Other 0.2 ( 0.3 ) 0.3 +Income tax provision $ ( 45.5 ) $ 17.0 $ 27.1 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) January 2 , +2021 December 28, +2019 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances $ 3.5 $ 5.7 +Deferred compensation accruals 4.5 4.0 +Accrued pension expense 33.4 25.3 +Stock-based compensation 9.1 14.5 +Net operating loss and foreign tax credit carryforwards 21.0 17.6 +Book over tax depreciation and amortization 0.4 0.5 +Tenant lease expenses 4.4 3.6 +Environmental reserve 24.9 15.4 +Other 9.1 5.1 +Total gross deferred income tax assets 110.3 91.7 +Less valuation allowance ( 22.3 ) ( 17.6 ) +Net deferred income tax assets 88.0 74.1 +Deferred income tax liabilities: +Intangible assets ( 105.3 ) ( 157.5 ) +Tax over book depreciation and amortization ( 10.7 ) ( 8.6 ) +Other ( 4.3 ) ( 4.1 ) +Total deferred income tax liabilities ( 120.3 ) ( 170.2 ) +Net deferred income tax liabilities $ ( 32.3 ) $ ( 96.1 ) +The valuation allowance for deferred income tax assets as of January 2 , 2021 and December 28, 2019 was $ 22.3 million and $ 17.6 million, respectively. The net increase in the total valuation allowance during fiscal 2020 was $4.7 million. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation +62 +allowance results in an increase against the state deferred tax assets of $ 0.6 million, an increase related to state net operating loss carryforward of $ 1.9 million, and a net increase relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 2.2 million. +At January 2 , 2021, the Company had foreign net operating loss carryforwards of $ 30.1 million, which have expirations ranging from 2021 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 189.0 million and $ 22.0 million respectively, which have expirations ranging from 2022 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 3.1 million, which are available for an unlimited carryforward period to offset future foreign taxes. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) 2020 2019 +Unrecognized tax benefits at beginning of the year $ 6.9 $ 7.9 +Increases related to current year tax positions 2.6 1.6 +Decreases related to prior year positions ( 1.3 ) ( 1.4 ) +Decreases relating to settlements with taxing authorities ( 2.4 ) ( 1.2 ) +Decrease due to lapse of statute ( 0.3 ) — +Unrecognized tax benefits at end of the year $ 5.5 $ 6.9 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 5.0 million and $ 6.5 million as of January 2 , 2021 and December 28, 2019, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 0.6 million and $ 1.5 million as of January 2 , 2021 and December 28, 2019, respectively. +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. +The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 2.2 million and $ 1.2 million for fiscal years 2020 and 2019, respectively. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 229.1 million at January 2 , 2021. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) +Accumulated other comprehensive income represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +63 +The change in accumulated other comprehensive income (loss) during fiscal years 2020 and 2019 is as follows: +(In millions) Foreign +currency +translation Derivatives Pension Total +Balance at December 29, 2018 $ ( 53.0 ) $ 0.9 $ ( 36.2 ) $ ( 88.3 ) +Other comprehensive income (loss) before reclassifications (1) +5.4 0.9 ( 14.6 ) ( 8.3 ) +Amounts reclassified from accumulated other comprehensive income (loss) — ( 9.8 ) +(2) +2.6 +(3) +( 7.2 ) +Income tax (expense) benefit — 2.2 ( 0.5 ) 1.7 +Net reclassifications +— ( 7.6 ) 2.1 ( 5.5 ) +Net current-period other comprehensive income (loss) (1) +5.4 ( 6.7 ) ( 12.5 ) ( 13.8 ) +Balance at December 28, 2019 $ ( 47.6 ) $ ( 5.8 ) $ ( 48.7 ) $ ( 102.1 ) +Other comprehensive income (loss) before reclassifications (1) +10.8 ( 17.6 ) ( 30.0 ) ( 36.8 ) +Amounts reclassified from accumulated other comprehensive income (loss) — 3.5 +(2) +6.6 +(3) +10.1 +Income tax (expense) benefit — ( 0.4 ) ( 1.4 ) ( 1.8 ) +Net reclassifications +— 3.1 5.2 8.3 +Net current-period other comprehensive income (loss) (1) +10.8 ( 14.5 ) ( 24.8 ) ( 28.5 ) +Balance at January 2, 2021 $ ( 36.8 ) $ ( 20.3 ) $ ( 73.5 ) $ ( 130.6 ) +(1) Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) Amounts related to foreign currency derivatives deemed to be highly effective are included in cost of goods sold. Amounts related to foreign currency derivatives that are no longer deemed to be highly effective are included in other income. Amounts related to interest rate swaps and the cross currency swap are included in interest expense. +(3) Amounts reclassified are included in the computation of net pension expense. +16. FAIR VALUE MEASUREMENTS +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) January 2 , 2021 December 28, 2019 +Financial assets: +Derivatives $ — $ 2.3 +Financial liabilities: +Derivatives $ ( 19.6 ) $ ( 6.6 ) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. The fair value of the cross-currency swap is determined using the current forward rates and changes in the spot rate. +64 +Nonrecurring Fair Value Measurements +Indefinite-lived intangible assets are tested annually, or if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3). The Company recorded an impairment charge of $ 222.2 million on the Sperry ® indefinite-lived trade name in fiscal 2020. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sperry ® trade name impairment. +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt are as follows: +(In millions) January 2 , 2021 December 28, 2019 +Carrying value $ 722.5 $ 798.4 +Fair value 765.4 817.6 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +17. LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M Company changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets and Scotchgard™. +In May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion (“ppt”) combined for PFOA and PFOS. In January 2018, the Michigan Department of Environmental Quality (“MDEQ”, now known as the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”)) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. On August 3, 2020, Michigan changed the standards for PFOA and PFOS in drinking water to 8 and 16 ppt, respectively, and set standards for four other PFAS substances. +Civil and Regulatory Actions of EGLE and EPA +On January 10, 2018, EGLE filed a civil action against the Company in the U.S. District Court for the Western District of Michigan under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”) and Parts 201 and 31 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has resulted in releases of PFAS at levels exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action"). Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, NREPA, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and common law nuisance. +On February 3, 2020, the parties entered into a consent decree resolving the EGLE Action, which was approved by U.S. District Judge Janet T. Neff on February 19, 2020 (the “Consent Decree”). Under the Consent Decree, the Company agreed to pay for an extension of Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million. The Company also agreed to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to the assess the presence of PFAS in area groundwater. The Company’s activities under the Consent Decree are not materially impacted by the drinking water standards that became effective on August 3, 2020. +65 +On December 19, 2018, the Company filed a third-party complaint against 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the EGLE Action ("the 3M Action"). On June 20, 2019, the 3M Company filed a counterclaim against the Company in response to the 3M Action, seeking, among other things, contractual and common law indemnity and contribution under CERCLA and Part 201 of NREPA. On February 20, 2020, the Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company paid the Company a lump sum amount of $ 55.0 million during the first quarter of fiscal 2020. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a) with an effective date of February 1, 2018. The Order pertained to specified removal actions at the Company's Tannery and House Street sites, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites. On October 28, 2019, the EPA and the Company entered into an Administrative Settlement and Order on Consent (“AOC”) that supersedes the Order and addresses the agreed-upon removal actions outlined in the Order. The Company has completed almost all of these activities related to the AOC, and anticipates completing the remaining activities in 2021 pursuant to approved work plans. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual and Class Action Litigation +Individual lawsuits and three putative class action lawsuits have been filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. The three putative class action lawsuits were subsequently refiled in the U.S. District Court for the Western District of Michigan as a single consolidated putative class action lawsuit. 3M Company has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit. In addition, the current owner of a former landfill and gravel mining operation sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (this suit collectively with the individual lawsuits and putative class action, the “Litigation Matters”). +Assessing potential liability with respect to the Litigation Matters at this time is difficult. The Litigation Matters are in various stages of discovery and related motions. In addition, there is minimal direct and relevant precedent for these types of claims related to PFAS, and the science regarding the human health effects of PFAS exposure in the environment remains inconclusive and inconsistent, thereby creating additional uncertainties. Due to these factors, combined with the complexities and uncertainties of litigation, the Company is unable to conclude that adverse verdicts resulting from the Litigation Matters are probable, and therefore no amounts are currently reserved for these claims. The Company intends to continue to vigorously defend itself against these claims. +In addition, in December 2018 the Company filed a lawsuit against certain of its historic liability insurers, seeking their participation in the Company's defense and remediation efforts. The Company recognized $ 8.3 million in recoveries from legacy insurance policies in fiscal 2020. The recoveries resulted from interim payment agreements reached with the insurers and are pending final resolution of the lawsuit filed by the Company. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment, intellectual property, and other environmental matters. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available to the Company and reserves for liabilities that the Company has recorded, along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +Environmental Liabilities +The following is a summary of the activity with respect to the environmental remediation reserve established by the Company: +Fiscal Year +(In millions) 2020 2019 +Remediation liability at beginning of the year +$ 124.4 $ 22.6 +Changes in estimate +— 112.9 +Amounts paid +( 22.6 ) ( 11.1 ) +Remediation liability at the end of the year +$ 101.8 $ 124.4 +66 +The reserve balance as of January 2 , 2021 includes $ 23.6 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 78.2 million expected to be paid over the course of up to 25 years, recorded in other liabilities. +The Company's remediation activity at the Tannery property, House Street site and other relevant disposal sites is ongoing. Although the recent Consent Decree has made near-term costs more clear, it is difficult to estimate the long-term cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to January 2 , 2021 are as follows: +(In millions) 2021 2022 2023 2024 2025 Thereafter +Minimum royalties $ 1.7 $ 1.8 $ — $ — $ — $ — +Minimum advertising 3.3 3.4 3.5 3.6 — — +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 1.9 million, $ 2.3 million and $ 2.2 million for fiscal years 2020, 2019 and 2018, respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 2.5 million, $ 3.6 million and $ 3.3 million for fiscal years 2020, 2019 and 2018, respectively. +18. BUSINESS SEGMENTS +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate expenses, such as costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. The Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +67 +Company management uses various financial measures to evaluate the performance of the reportable segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) 2020 2019 2018 +Revenue: +Wolverine Michigan Group $ 1,051.0 $ 1,299.7 $ 1,272.2 +Wolverine Boston Group 696.0 910.9 895.5 +Other 44.1 63.1 71.5 +Total $ 1,791.1 $ 2,273.7 $ 2,239.2 +Operating profit (loss): +Wolverine Michigan Group $ 179.9 $ 244.8 $ 257.6 +Wolverine Boston Group 88.1 153.8 157.5 +Other 1.6 2.9 3.1 +Corporate ( 406.7 ) ( 230.5 ) ( 166.3 ) +Total $ ( 137.1 ) $ 171.0 $ 251.9 +Depreciation and amortization expense: +Wolverine Michigan Group $ 2.7 $ 2.4 $ 2.7 +Wolverine Boston Group 3.4 3.3 3.3 +Other 2.0 2.4 3.1 +Corporate 24.7 24.6 22.4 +Total $ 32.8 $ 32.7 $ 31.5 +Capital expenditures: +Wolverine Michigan Group $ 0.8 $ 2.2 $ 3.1 +Wolverine Boston Group 2.3 5.7 1.2 +Other 0.9 2.2 1.8 +Corporate 6.3 24.3 15.6 +Total $ 10.3 $ 34.4 $ 21.7 +(In millions) January 2 , +2021 December 28, +2019 +Total assets: +Wolverine Michigan Group $ 626.9 $ 773.8 +Wolverine Boston Group 1,077.8 1,354.8 +Other 31.4 38.4 +Corporate 401.3 313.0 +Total $ 2,137.4 $ 2,480.0 +Goodwill: +Wolverine Michigan Group $ 145.4 $ 144.4 +Wolverine Boston Group 297.0 294.5 +Total $ 442.4 $ 438.9 +68 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) 2020 2019 2018 +United States $ 1,234.2 $ 1,507.9 $ 1,505.2 +Foreign: +Europe, Middle East and Africa 279.8 343.1 325.7 +Asia Pacific 120.3 193.7 186.0 +Canada 88.9 117.9 116.7 +Latin America 67.9 111.1 105.6 +Total from foreign territories 556.9 765.8 734.0 +Total revenue $ 1,791.1 $ 2,273.7 $ 2,239.2 +The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment and lease right-of-use assets, is as follows: +(In millions) January 2 , +2021 December 28, +2019 December 29, +2018 +United States $ 222.2 $ 247.2 $ 117.1 +Foreign countries 44.9 54.6 13.8 +Total $ 267.1 $ 301.8 $ 130.9 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2020, the Company sourced 100 % of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +19. BUSINESS ACQUISITIONS +On April 30, 2019, the Company acquired assets and assumed liabilities from Sportlab S.R.L. (“Sportlab”), the distributor of Saucony ® footwear in Italy. Total purchase consideration of $ 25.2 million includes cash paid, extinguishment of Sportlab’s accounts payable balance that was due to the Company at the time of acquisition and contingent consideration. The contingent consideration was based on sales activity from the date of the acquisition through the end of fiscal 2019 and was paid in the first quarter of fiscal 2020. The detailed amounts of each component of the purchase consideration are as follows: +(In millions) Purchase Consideration +Cash paid $ 15.1 +Extinguishment of Sportlab’s accounts payable balance 4.6 +Contingent consideration 5.5 +Total purchase consideration $ 25.2 +The Company accounted for the acquisition under the provisions of FASB ASC Topic 805, Business Combinations . The related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results for the acquired Saucony ® distribution business are included in the Company’s consolidated results of operations beginning April 30, 2019, and are included in the Wolverine Boston Group reporting group for segment reporting purposes. +69 +The final allocation of the purchase price as of December 28, 2019 was: +(In millions) Final Valuation +Accounts receivable $ 1.8 +Inventories 6.2 +Goodwill 12.0 +Amortizable intangibles 12.9 +Total assets acquired 32.9 +Deferred income taxes 3.2 +Other liabilities 4.5 +Total liabilities assumed 7.7 +Net assets acquired $ 25.2 +The excess of the purchase price over the fair value of the net assets acquired, amounting to $ 12.0 million, was recorded as goodwill in the consolidated balance sheet and was assigned to the Wolverine Boston Group reportable segment. The goodwill that was recognized is attributable to the efficiencies to be gained by integrating operations with the Saucony ® distribution business purchased from Sportlab. Other intangible assets acquired include order backlog, valued at $ 1.7 million, and customer relationship assets, valued at $ 11.2 million, which had estimated useful lives at the acquisition date of 7 months and 14 years, respectively. +20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) +The aggregate quarterly earnings per share amounts disclosed in the table below may not equal the annual per share amounts due to rounding and the fact that results for each quarter are calculated independently of the full fiscal year. The Company’s unaudited quarterly results of operations are as follows: +Fiscal 2020 Quarters Ended +(In millions, except per share data) March 28, 2020 June 27, 2020 September 26, 2020 January 2 , 2021 +Revenue +$ 439.3 $ 349.1 $ 493.1 $ 509.6 +Gross profit +181.8 147.2 202.0 204.6 +Net earnings (loss) attributable to Wolverine World Wide, Inc. 13.0 ( 1.6 ) 22.4 ( 170.7 ) +Net earnings (loss) per share: +Basic +$ 0.16 $ ( 0.02 ) $ 0.27 $ ( 2.10 ) +Diluted +0.16 ( 0.02 ) 0.27 ( 2.10 ) +Fiscal 2019 Quarters Ended +(In millions, except per share data) March 30, 2019 June 29, 2019 September 28, 2019 December 28, 2019 +Revenue +$ 523.4 $ 568.6 $ 574.3 $ 607.4 +Gross profit +220.2 230.4 243.3 229.9 +Net earnings (loss) attributable to Wolverine World Wide, Inc. 40.5 40.2 48.7 ( 0.9 ) +Net earnings (loss) per share: +Basic +$ 0.44 $ 0.45 $ 0.57 $ ( 0.01 ) +Diluted +0.43 0.45 0.57 ( 0.01 ) +70 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, comprehensive income (loss) , stockholders' equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. +Valuation of indefinite-lived intangibles +Description of the Matter +At January 2, 2021, the Company’s indefinite-lived intangible assets were $382.3 million, which included $296.0 million for the Sperry trade name. As discussed in Notes 1 and 4 of the consolidated financial statements, indefinite-lived intangibles are tested for impairment at least annually. +Auditing management’s annual impairment test for the Sperry trade name was complex and highly judgmental due to the significant estimation required in determining the fair value of the Sperry trade name indefinite-lived intangible asset. The fair value estimate was sensitive to significant assumptions such as future revenue growth and operating profit, and the discount rate, which are affected by expectations about future market or economic conditions. Changes in these assumptions could have a significant impact on the fair value of the Sperry trade name, the amount of any impairment charge, or both. During fiscal 2020, the Company recognized an impairment charge related to the Sperry trade name of $222.2 million, as the carrying value exceeds its estimated fair value. +71 +Given the significant judgments made by management to estimate the fair value of the Sperry trade name and the impairment charge recorded during the year, performing auditing procedures to evaluate the reasonableness of management’s judgments regarding the business and valuation assumptions utilized in the valuation model, particularly the future revenue growth, operating profit, and discount rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s Sperry trade name impairment review process. This included controls over the significant assumptions described above and the completeness and accuracy of the data used in the fair value estimate. +To test the estimated fair value of the Sperry trade name, we performed audit procedures that included, among others, assessing the valuation model and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate. We also compared the significant assumptions used by management to current industry and economic trends, to the business model used by Sperry and other relevant factors. Additionally, we assessed the historical accuracy of management’s estimates. +Environmental Liabilities +Description of the Matter +As discussed in Note 17, the Company has recognized environmental liabilities of $101.8 million on an undiscounted basis. Specifically, the Company was served with two regulatory actions filed by the Environmental Protection Agency (“EPA”) and Michigan Department of Environment, Great Lakes, and Energy (“EGLE”) in early 2018. The Company, EGLE and EPA entered into various settlement agreements that address and outline the Company’s required remedial actions. The Company believes it is probable that it will incur losses related to the required remediation actions and has recognized environmental liabilities for its estimate of the cost of the remedial actions. +Auditing management’s accounting for and disclosure of loss contingencies from the environmental matters was especially challenging as evaluating the probability and amount of loss is highly subjective and requires significant judgment due in part to the uncertain nature and extent of the activities to complete the required remedial actions. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification, evaluation and disclosure of these environmental matters, including the Company’s assessment and measurement of the estimate of the probable liability. +To test the assessment of the probability of incurrence of a loss and the estimated loss, to the extent it was reasonably estimable, we performed audit procedures that included, among others, reviewing summaries of the proceedings and related correspondence with attorneys and environmental agencies, reviewing legal counsel confirmation letters, assessing scope and cost estimates of the Company’s third-party environmental studies used in determination of the reserve, utilizing internal environmental specialists to assist with assessing the cost estimate (by using all the information available) and searching for other publicly available information that might indicate new or contrary facts related to the matter. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 26, 2021 +72 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries' internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on the COSO criteria . +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 2, 2021 and December 28, 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and financial statement schedule and our report dated February 26, 2021 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 26, 2021 +73 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of January 2, 2021, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 2, 2021. +The effectiveness of the Company’s internal control over financial reporting as of January 2, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended January 2, 2021 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. Other Information +None. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine World Wide, Inc. expected to be held on May 6, 2021 in sections "Election of Directors" and "Corporate Governance". The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct is posted on our website located at http://www.wolverineworldwide.com/investor-relations/corporate-governance/. We intend to disclose future amendments to certain provisions of the Code of Business Conduct, and waivers of the Code of Business Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver. +Item 11. Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Compensation Discussion and Analysis". +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Equity Compensation Plan Information" and "Securities Ownership of Officers and Directors and Certain Beneficial Owners". +74 +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". +Item 14. Principal Accountant Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Independent Registered Public Accounting Firm". +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a) The following documents are filed as part of this report: +(1) Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• Consolidated Statements of Operations for the Fiscal Years Ended January 2, 2021, December 28, 2019 and December 29, 2018. +• Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended January 2, 2021, December 28, 2019 and December 29, 2018. +• Consolidated Balance Sheets as of January 2, 2021 and December 28, 2019. +• Consolidated Statements of Cash Flows for the Fiscal Years Ended January 2, 2021, December 28, 2019 and December 29, 2018. +• Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 2, 2021, December 28, 2019 and December 29, 2018. +• Notes to the Consolidated Financial Statements. +• Reports of Independent Registered Public Accounting Firm. +(2) Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Exhibit Number Document +3.1 +Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 8, 2019. +4.1 +Description of the Registrant's Securities Registered Pursuant To Section 12 of The Securities Exchange Act of 1934 . Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year en ded December 28 , 20 19 . +4.2 +Senior Notes Indenture, dated August 30, 2016, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +4.3 +Form of 5.000% Senior Note due 2026. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 6, 2016. +75 +Exhibit Number Document +4.4 +Senior Notes Indenture, dated May 11, 2020, among Wolverine World Wide, Inc., the guarantors named therein, and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 11, 2020. +4.5 +Form of 6.375% Senior Notes due 2025. Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 11, 2020. +10.1 +Amended and Restated Stock Incentive Plan of 2005.* Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.2 +Amended and Restated Directors’ Stock Option Plan.* Incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.3 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.4 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.5 +Wolverine World Wide, Inc. Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2019. +10.6 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.7 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.7. +10.8 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.8. +10.9 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.10 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.11 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.12 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.13 +Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.14 +2016 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.15 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.16 +2017 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +10.17 +Form of Performance Stock Unit Award Agreement (2017 - 2019 performance period).* Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. +10.18 +2018 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.19 +Form of Performance Restricted Stock Unit Agreement (2018 - 2020 performance period).* Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.20 +2019 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2019. +76 +Exhibit Number Document +10.21 +Form of Performance Stock Unit Award Agreement (2019 - 2021 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2019. +10.22 +2020 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 2020. +10.23 +Form of Performance Stock Unit Award Agreement (2020 - 2022 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 2020. +10.24 +2020 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 22, 2020. +10.25 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.26 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.27 +Separation and Release Agreement between Wolverine World Wide, I nc. and Todd Spaletto, dated as of April 15, 2020.* Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 2020. +10.28 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.2 8 . +10.29 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.30 +Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 26, 2020. +10.31 +Executive Severance Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.32 +Indemnification Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.33 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.34 +Wolverine World Wide, Inc. Deferred Compensation Plan, Amended and Restated.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.35 +First Amendment to the Wolverine World Wide, Inc. Deferred Compensation Plan, dated as of December 29, 2020.* +10.36 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.37 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.38 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016, as amended and restated.* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 27, 2018. +10.39 +Sixth Amendment to the Wolverine Employees' Pension Plan.* Incorporated by reference to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 29, 2018. +10.40 +Resolution of the Wolverine World Wide, Inc. Board of Directors Authorizing the Merger of the Wolverine Collectively Bargained Employees’ Pension Plan and the Wolverine Employees’ Pension Plan . Incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019 . +10.41 +First Amendment to the Wolverine Employees' Pension Plan, dated as of December 2, 2020.* +77 +Exhibit Number Document +10.42 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.43 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.44 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.45 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.46 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.47 +Receivables Purchase Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.48 +Amendment to the Receivables Purchase Agreement, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser, dated January 5, 2018. Incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.49 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.50 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +10.51 +2018 Replacement Facility Amendment, dated as of December 6, 2018 among the Company, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, Wells Fargo Bank, National Association, Bank of America, N.A. and HSBC Bank USA, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2018. +10.52 +Second Amendment, dated as of May 5, 2020, to the Amended and Restated Credit Agreement, dated as of December 6, 2018, among Wolverine World Wide, Inc., as parent borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, the other borrowers party thereto, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 6, 2020. +10.53 +Consent Decree by and among Wolverine World Wide, Inc., the State of Michigan, Plainfield Charter Township, and Algoma Township. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 7, 2020. +21 +Subsidiaries of Registrant. +78 +Exhibit Number Document +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101 The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Consolidated Financial Statements. +104 The cover page of the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021, formatted in Inline XBRL (included in Exhibit 101). +* Management contract or compensatory plan or arrangement. +Item 16. Form 10-K Summary +None. +79 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: February 26, 2021 By: /s/ Blake W. Krueger +Blake W. Krueger +Chairman and Chief Executive Officer (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Blake W. Krueger Chairman and Chief Executive Officer (Principal Executive Officer) February 26, 2021 +Blake W. Krueger +/s/ Michael D. Stornant Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) February 26, 2021 +Michael D. Stornant +/s/ Brendan L. Hoffman President and Director February 26, 2021 +Brendan L. Hoffman +/s/ Jeffrey M. Boromisa Director February 26, 2021 +Jeffrey M. Boromisa +/s/ Gina R. Boswell Director February 26, 2021 +Gina R. Boswell +/s/ Roxane Divol Director February 26, 2021 +Roxane Divol +/s/ William K. Gerber Director February 26, 2021 +William K. Gerber +/s/ David T. Kollat Director February 26, 2021 +David T. Kollat +/s/ Brenda J. Lauderback Director February 26, 2021 +Brenda J. Lauderback +/s/ Nicholas T. Long Director February 26, 2021 +Nicholas T. Long +/s/ David W. McCreight Director February 26, 2021 +David W. McCreight +/s/ Michael A. Volkema Director February 26, 2021 +Michael A. Volkema +80 +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +(In millions) Balance at +Beginning of +Period +Charged to +Costs and +Expenses Deductions +(Describe) Balance at +End of +Period +Fiscal Year Ended January 2, 2021 +Deducted from asset accounts: +Allowance for credit losses $ 6.0 $ 9.7 $ 9.0 (A) $ 6.7 +Allowance for sales returns 11.4 41.5 37.3 (B) 15.6 +Allowance for cash discounts and customer markdowns 9.3 19.8 17.9 (C) 11.2 +Inventory valuation allowances 7.3 9.3 7.5 (D) 9.1 +Total $ 34.0 $ 80.3 $ 71.7 $ 42.6 +Fiscal Year Ended December 28, 2019 +Deducted from asset accounts: +Allowance for credit losses (1) +$ 4.0 $ 5.1 $ 3.1 (A) $ 6.0 +Allowance for sales returns 13.6 50.2 52.4 (B) 11.4 +Allowance for cash discounts and customer markdowns (1) +9.0 15.3 15.0 (C) 9.3 +Inventory valuation allowances 8.3 6.9 7.9 (D) 7.3 +Total $ 34.9 $ 77.5 $ 78.4 $ 34.0 +Fiscal Year Ended December 29, 2018 +Deducted from asset accounts: +Allowance for credit losses (1) +$ 6.8 $ 2.8 $ 5.6 (A) $ 4.0 +Allowance for sales returns 12.6 53.8 52.8 (B) 13.6 +Allowance for cash discounts and customer markdowns (1) +12.1 17.9 21.0 (C) 9.0 +Inventory valuation allowances 11.5 6.1 9.3 (D) 8.3 +Total $ 43.0 $ 80.6 $ 88.7 $ 34.9 +(1) Prior year amounts were reclassified between lines within the schedule to conform with current year presentation. +(A) Accounts charged off, net of recoveries. +(B) Actual customer returns. +(C) Discounts given to customers. +(D) Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2020/0000110471-21-000008/filing_metadata.csv b/raw/filings/0000110471/2020/0000110471-21-000008/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..51f63918b0a9c91679604a641507fa4c259393ec --- /dev/null +++ b/raw/filings/0000110471/2020/0000110471-21-000008/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2021-02-26,2021-01-02,2021-02-26T15:34:19.000Z,0000110471-21-000008,www-20210102.htm,FORM 10-K,14433682,1,1,https://www.sec.gov/Archives/edgar/data/110471/000011047121000008/www-20210102.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047121000008/,2020,2020,1 diff --git a/raw/filings/0000110471/2020/0000110471-21-000008/item1.txt b/raw/filings/0000110471/2020/0000110471-21-000008/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..fc9b13a406e63ce2f5ebdfef3ba0b5d6b96773b5 --- /dev/null +++ b/raw/filings/0000110471/2020/0000110471-21-000008/item1.txt @@ -0,0 +1,89 @@ +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s consumer-direct businesses. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate e xpenses, such as costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Wolverine Michigan Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you came from, who you love, or how you move — everyone should be welcome in the outdoors and wherever life takes us. Merrell ® works each day to build innovative, thoughtfully-designed, rigorously-tested products that over-deliver on quality, comfort, versatility, and style. Merrell ® designs and creates footwear, apparel, and accessories for the whole family in categories such as hiking, trail running, training, lifestyle, and work. Merrell ® can be found around the world in the Company's own retail stores and on Merrell ® eCommerce sites, including merrell.com, and in industry-leading, partner retailers and digital platforms. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for +6 +over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children - sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path; men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories across three strategic territories; Work, Outdoor and Heritage. The brand is best known for DuraShocks comfort technology in work boots, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Chaco ® : Chaco ® has a rich, 30+ year history of creating footwear that’s “Fit For Adventure” of any kind, whether that’s exploring rivers, trails or swerving city streets. Originating as an innovation in the whitewater rafting world, Chaco ® now designs footwear for all walks of life in the outdoor and lifestyle communities. The brand's mission is to help people find their way, providing access to new people, places, and experiences that make them more confident in who they are and where they’re headed. That’s why we create footwear that comes with all-terrain versatility, a unique 360° fit, unmatched durability and signature LUVSEAT™ footbed arch support. The MyChacos custom sandal program provides customers an opportunity to express their funky individuality, while the ReChaco program helps reduce their impact on the places they explore by repairing used sandals. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire our consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Bates ® : The Bates ® brand supplies footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of Bates ® footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle , casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +Hytest ® Safety Footwear: The Hytest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. Hytest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +2. Wolverine Boston Group +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® remains the leader in the boat shoe category, and has also expanded its business into casuals, wet weather, boots and sneakers. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Sperry ® retail stores and Sperry.com. +7 +Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony's ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as Saucony ® retail stores and an eCommerce site. +Keds ® : Keds ® is an authentic, casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first. +Kids' Footwear: The Kids' footwear business includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are distributed through premium and better lifestyle retailers, outdoor and sporting goods retailers, as well as through an eCommerce site and by a license partner. +Other Businesses +In addition to its reportable segments, the Company operates a performance leather business, sourcing operations and a multi-brand consumer-direct business. +Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Sourcing Division - The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Consumer-Direct Division - The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfoli o and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each reportable segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive +8 +advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico, Colombia and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +9 +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , Hytest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license term runs through December 31, 2024 and the Harley-Davidson ® license term runs through December 31, 2022. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +Prior to the COVID-19 pandemic, the Company’s business was subject to seasonal influences that could cause significant differences in revenue, earnings and cash flows from quarter to quarter. The COVID-19 pandemic resulted in changes in consumer behavior and preferences in fiscal 2020 that have negatively impacted the Company's fiscal 2020 results. The Company expects the seasonal cadence that the Company experienced historically may continue to be affected as a result of these changes in consumer behavior and preferences. +The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under the Revolving Credit Facility, included in its Amended Senior Credit Facility as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +Human Capital Resources +Employee Profile : As of January 2, 2021, the Company had approximately 3,400 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and as such we work to maximize the +10 +engagement and contribution of our current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : Our talent strategy is focused on attracting top talent and continually developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for our team members. We recently launched an engaging modern recruitment marketing website to tell our compelling story of opportunity and inclusion. Development starts on day one with an enriching Day 1 experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +In order to maximize engagement and contribution of our team members, we conduct regular pulse and check-in surveys to ensure we are in touch with our team member needs and perspectives. Our annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of the most up-to-date and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the employees’ region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state of the art Fitness Center, Child Care, and Doggie Day Care facilities for our employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders through partnerships with top educational institutions which focuses both on business leadership and capabilities needed to evolve our businesses, and on people leadership capabilities to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is viewed as critical to the Company's future success. To enhance the development of employees, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion : The Company is committed to having a diverse and inclusive workforce which is reflected in the wide range of cultures, religions, ethnicities and nationalities, as well as varied professional and educational backgrounds currently represented at the Company. Because the Company believes in cultivating a well-rounded, diverse workforce, the Company continuously seeks out individuals who reflect and support the goal of maintaining a diverse corporation. We have further prioritized diversity and inclusion by hiring an expert partner to help us build a framework to promote an inclusive environment today and into the future in order to make the Company an even greater place to work. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. The Company's focus on the health and safety of its workforce is also evidenced by the actions it has taken in response to the COVID-19 pandemic around the globe, including: +• Increasing employees' work from home flexibility; +• Adjusting attendance policies to encourage those who are sick to stay home; +• Increasing cleaning protocols; +• Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures; +• Implementing temperature screening of employees at the majority of its distribution facilities; +• Establishing new physical distancing procedures for employees who need to be onsite; +• Providing additional personal protective equipment and cleaning supplies; +• Modifying work spaces with plexiglass dividers and touchless faucets; +• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure; +• Prohibiting all domestic and international non-essential travel for all employees; and +• Requiring masks to be worn in all locations where allowed by local law. +The Company distributes its products to a variety of customers, many of which are deemed essential, including customers in the health and safety, critical construction, food and agriculture, and energy sectors. As a result, the majority of the Company's distribution facilities have continued operating since the COVID-19 pandemic began. In order to keep distribution facilities open, the Company invested in creating physically safe work environments for employees. +11 +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2020/0000110471-21-000008/item13.txt b/raw/filings/0000110471/2020/0000110471-21-000008/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c6b4e0ce38d9f5c5ef9827895af49bfa95096deb --- /dev/null +++ b/raw/filings/0000110471/2020/0000110471-21-000008/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". \ No newline at end of file diff --git a/raw/filings/0000110471/2020/0000110471-21-000008/item9a.txt b/raw/filings/0000110471/2020/0000110471-21-000008/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..e7dc1891ba2982c129dd274573f173603c39e0f0 --- /dev/null +++ b/raw/filings/0000110471/2020/0000110471-21-000008/item9a.txt @@ -0,0 +1,8 @@ +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of January 2, 2021, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 2, 2021. +The effectiveness of the Company’s internal control over financial reporting as of January 2, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended January 2, 2021 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2020/0000110471-21-000008/rp_note.txt b/raw/filings/0000110471/2020/0000110471-21-000008/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000110471/2020/0000110471-21-000008/rpt_disclosure.txt b/raw/filings/0000110471/2020/0000110471-21-000008/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..71083cad2bd97bc6d06815eff245cf4ce405ca66 --- /dev/null +++ b/raw/filings/0000110471/2020/0000110471-21-000008/rpt_disclosure.txt @@ -0,0 +1,49 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since December 29, 2019, the Company has not engaged in any “related person” +transactions with its directors, executive officers or holders of 5% or more of Company voting securities, affiliates or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related +person transactions. They require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must +review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or +relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +the aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine +Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +any employment compensation paid to an executive officer of the Company if the Compensation Committee +approved or recommended to the Board of Directors for approval of such compensation; +(2) +any compensation paid to a director for service as a director of the Company; +(3) +any transaction in which a Related Person has an indirect interest solely as a result of being (i) a +director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together +with all other Related Persons, has an interest of less than 10%; or +(4) +any transaction in which the Related Person's interest arises solely from the ownership of the +Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend). +(5) +any transaction with another publicly traded company where the Related Person's interest arises +solely from the ownership of more than 5% of the Company's common stock and the ownership of a non-controlling interest in the other publicly traded company. +Related Person +Any: +(a) +person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an +Annual Report on Form 10-K and Proxy Statement, an executive officer, director or, to the extent information regarding such nominee is being presented in a proxy or information statement relating to the election of that nominee as a +director, nominee for election as a director; +(b) +beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +immediate family member* of any of the foregoing. +* +Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers and +fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law, and anyone residing in such person's home (other than a tenant or employee). +The Governance Committee considers whether the Interested Transaction is on terms no +less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director +participates in any discussion or approval of an Interested Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. \ No newline at end of file diff --git a/raw/filings/0000110471/2021/0000110471-22-000008/filing.txt b/raw/filings/0000110471/2021/0000110471-22-000008/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..e62e8d580d6b52a9eccdf6d0d1866e1f76d0e82c --- /dev/null +++ b/raw/filings/0000110471/2021/0000110471-22-000008/filing.txt @@ -0,0 +1,2071 @@ +www-20220101 +1/1 2021 FY 0000110471 false 1 1 320,000,000 320,000,000 52 53 52 5 0000110471 2021-01-03 2022-01-01 0000110471 2021-07-02 iso4217:USD 0000110471 2022-02-11 xbrli:shares 0000110471 2019-12-29 2021-01-02 0000110471 2018-12-30 2019-12-28 iso4217:USD xbrli:shares 0000110471 2022-01-01 0000110471 2021-01-02 0000110471 2019-12-28 0000110471 2018-12-29 0000110471 us-gaap:CommonStockMember 2018-12-29 0000110471 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0000110471 us-gaap:InventoryValuationReserveMember 2019-12-29 2021-01-02 0000110471 us-gaap:AllowanceForCreditLossMember 2018-12-29 0000110471 us-gaap:AllowanceForCreditLossMember 2018-12-30 2019-12-28 0000110471 us-gaap:SalesReturnsAndAllowancesMember 2018-12-29 0000110471 us-gaap:SalesReturnsAndAllowancesMember 2018-12-30 2019-12-28 0000110471 www:ReserveforPromptPaymentDiscountsMember 2018-12-29 0000110471 www:ReserveforPromptPaymentDiscountsMember 2018-12-30 2019-12-28 0000110471 us-gaap:InventoryValuationReserveMember 2018-12-29 0000110471 us-gaap:InventoryValuationReserveMember 2018-12-30 2019-12-28 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended January 1, 2022 +or +☐ 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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware 38-1185150 +State or other jurisdiction of +incorporation or organization (I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E. +Rockford , Michigan 49351 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $1 Par Value WWW New York Stock Exchange +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. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ +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 þ Accelerated filer ☐ +Non-accelerated filer +¨ +Smaller reporting company ☐ +Emerging growth company ☐ +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 Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on July 2, 2021, the last business day of the registrant’s most recently completed second fiscal quarter: $ 2,662,805,544 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 11, 2022 : 81,689,715 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting expected to be held May 4, 2022 are incorporated by reference into Part III of this report. +Table of Contents +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +11 +Item 1B. +Unresolved Staff Comments +21 +Item 2. +Properties +21 +Item 3. +Legal Proceedings +21 +Item 4. +Mine Safety Disclosures +21 +Supplemental Item. +Executive Officers of the Registrant +21 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6. +Reserved +24 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +24 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +34 +Item 8. +Financial Statements and Supplementary Data +35 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +74 +Item 9A. +Controls and Procedures +74 +Item 9B. +Other Information +74 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +74 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +74 +Item 11. +Executive Compensation +75 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +75 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +76 +Item 14. +Principal Accountant Fees and Services +76 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +76 +Item 16. +Form 10-K Summary +80 +SIGNATURES +81 +Appendix A: Financial Statement Schedule +A-1 +3 +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• the potential effects of the COVID-19 pandemic on the Company’s business, operations, financial results and liquidity; +• changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• the inability for any reason to effectively compete in global footwear, apparel and consumer-direct markets; +• the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• the inability to effectively manage inventory levels; +• increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• foreign currency exchange rate fluctuations; +• currency restrictions; +• supply chain and capacity constraints, production disruptions, including reduction in operating hours, labor shortages, and facility closures resulting in production delays at the Company’s manufacturers due to disruption from the effects of the COVID-19 pandemic, quality issues, price increases or other risks associated with foreign sourcing; +• the cost, inflationary pressures and availability of raw materials, inventories, services and labor for contract manufacturers; +• labor disruptions; +• changes in relationships with, including the loss of, significant wholesale customers; +• risks related to the significant investment in, and performance of, the Company’s consumer-direct operations; +• risks related to expansion into new markets and complementary product categories as well as consumer-direct operations; +• the impact of seasonality and unpredictable weather conditions; +• the impact of changes in general economic conditions and/or the credit markets on the Company’s manufacturers, distributors, suppliers, joint venture partners and wholesale customers; +• changes in the Company’s effective tax rates; +• failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• the risks of doing business in developing countries and politically or economically volatile areas; +• the ability to secure and protect owned intellectual property or use licensed intellectual property; +• the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; +• risks of breach of the Company’s databases or other systems, or those of its vendors, which contain certain personal information, payment card data or proprietary information, due to cyberattack or other similar events; +• problems affecting the Company's supply chain and distribution system, including service interruptions at shipping and receiving ports; +• strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, including Sweaty Betty ® , and implementing new initiatives and ventures; +• the risk of impairment to goodwill and other intangibles; +• the success of the Company’s restructuring and realignment initiatives undertaken from time to time; and +• changes in future pension funding requirements and pension expenses. +These or other uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. +4 +PART I +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Sweaty Betty ® activewear business, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate e xpenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s consumer-direct businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Wolverine Michigan Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you come from, who you love, or how you move. With a persistent focus on innovation, thoughtful design and rigorous testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +5 +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children - sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path; men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories across three strategic territories; Work, Outdoor and Casual. The brand is best known for DuraShocks and Ultraspring comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Chaco ® : Chaco ® has a rich, 30+ year history of creating footwear that’s “Fit For Adventure” of any kind, whether that’s exploring rivers, trails or swerving city streets. Originating as an innovation in the whitewater rafting world, Chaco ® now designs footwear for all walks of life in the outdoor and lifestyle communities. The brand's mission is to help people find their way, providing access to new people, places, and experiences that make them more confident in who they are and where they’re headed. That’s why Chaco ® creates footwear that comes with all-terrain versatility, a unique 360° fit, unmatched durability and signature LUVSEAT™ footbed arch support. The MyChacos custom sandal program provides customers an opportunity to express their funky individuality, while the ReChaco program helps reduce their impact on the places they explore by repairing used sandals. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders, U.S. Military members and military members of several foreign countries. Civilian uniform users include police officers, fire fighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle , casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +Hytest ® Safety Footwear: The Hytest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. Hytest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +2. Wolverine Boston Group +Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as +6 +well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony's ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as in Company owned Saucony ® retail stores and an eCommerce site. +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® is a market leader in both boat shoes and wet weather boots, and has expanded its business into casuals and sneakers. The brand is primarily distributed through Sperry.com and in Company owned Sperry ® retail stores, as well as leading premium and better lifestyle retailers. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Ever since the creation of the iconic Keds ® Champion "sneaker" back in 1916, Keds ® has held the belief that when we feel comfortable inside and out, we can leap forward and make our marks on the world. This belief continues to inspire and drive us every day. Keds ® designs every product to support everyone—to give them the versatility, comfort, and style they need to confidently live as their truest selves. Keds ® is focused on driving unique marketing and product stories through Keds.com and distributing footwear at leading footwear retailers worldwide. +Kids' Footwear: The Kids' footwear business includes footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® a nd Cat ® , as well as a licensed business, Stride Rite ® . Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are distributed through premium and better lifestyle retailers, outdoor and sporting goods retailers, as well as through an eCommerce site and by a license partner. With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Other Businesses +In addition to its reportable segments, the Company operates the Sweaty Betty ® activewear business, a performance leather business, sourcing operations and a multi-brand consumer-direct business. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, Europe and Asia and the world’s best luxury retailers, including Selfridges, Harrods, Neiman Marcus and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Consumer-Direct Division: The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfoli o and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel approach and +7 +includes various means of delivery, such as print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective marketing tools to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico, Colombia and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +8 +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company has a diversified supply base of raw pigskins and currently purchases a majority of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , Hytest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® , Sweaty Betty ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license was recently renewed and the license term runs through December 31, 2028 and the Harley-Davidson ® license term runs through December 31, 2022. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, the Revolving Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events, including pandemics such as COVID-19. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +9 +Human Capital Resources +Employee Profile : As of January 1, 2022, the Company had approximately 4,400 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and the Company works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and continually developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for team members. We maintain an engaging modern recruitment marketing website to tell the Company's compelling story of opportunity and inclusion. Development starts on day one with an enriching day one experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints through surveys, including a day one survey, 90 days into their career, regular pulse and check in surveys, and exit surveys. These insights have been especially valuable during the COVID-19 pandemic to understand and develop solutions to maintain a positive employee well-being. The Company's annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of the most up-to-date and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the employees’ region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state of the art Fitness Center, Child Care, and Doggie Day Care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders through partnerships with top educational institutions which focuses both on business leadership and capabilities needed to evolve the Company's businesses, and on people leadership capabilities to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is viewed as critical to the Company's future success. To enhance the development of employees, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion: The Company is committed to having a diverse and inclusive workforce which is reflected in the wide range of cultures, religions, ethnicities and nationalities, as well as varied professional and educational backgrounds currently represented at the Company. Because the Company believes in cultivating a well-rounded, diverse workforce, the Company continuously seeks out individuals who reflect and support the goal of maintaining a diverse corporation. We have further prioritized diversity and inclusion by hiring an expert partner to help us build a framework to promote an inclusive environment today and into the future in order to make the Company an even greater place to work. The Company's major development focus over the next year will be in implementing a comprehensive diversity, equity, and inclusion learning program which includes learning on inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. The Company's focus on the health and safety of its workforce is also evidenced by the actions it has taken in response to the COVID-19 pandemic around the globe, including: +• Increasing employees' work from home flexibility; +• Adjusting attendance policies to encourage those who are sick to stay home; +• Increasing cleaning protocols; +• Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures; +• Implementing temperature screening of employees at the majority of its distribution facilities; +• Establishing new physical distancing procedures for employees who need to be onsite; +• Providing additional personal protective equipment and cleaning supplies; +• Modifying work spaces with plexiglass dividers and touchless faucets; +• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure; +10 +• Prohibiting all domestic and international non-essential travel for all employees; and +• Requiring masks to be worn in all locations where allowed by local law. +The Company distributes its products to a variety of customers, many of which are deemed essential, including customers in the health and safety, critical construction, food and agriculture, and energy sectors. As a result, the majority of the Company's distribution facilities have continued operating since the COVID-19 pandemic began. In order to keep distribution facilities open, the Company invested in creating physically safe work environments for employees. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. Risk Factors +Risks Related to the COVID-19 Pandemic +The COVID-19 pandemic has disrupted the Company's operations and could have a material adverse impact on the Company’s operations and financial results. +The COVID-19 pandemic has negatively affected the global economy, disrupted consumer spending and global supply chains, and significantly increased the volatility and disruption of financial markets both globally and in the U.S. These conditions following the onset of the pandemic led to a decline in discretionary spending by consumers that had a negative effect on the Company's financial condition and results of operations in 2020. There can be no assurance that these conditions will not recur, for example, as new variants of the virus emerge, and negatively affect the Company's financial condition and results of operations in future periods. The extent to which the COVID-19 pandemic impacts the Company’s business, operations and financial results, including the duration and magnitude of such effects, will depend on numerous evolving factors outside of the Company's control that the Company cannot currently fully predict or assess, such as; the duration and scope of the pandemic and effectiveness of containment efforts; the negative impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates, consumer discretionary spending and levels of consumer confidence; and actions governments, businesses and individuals may take in response to the pandemic. The Company’s business has been and could continue to be materially adversely affected by several factors related to the COVID-19 pandemic, including, but not limited to: +• The inability of employees, suppliers and other business providers to carry out tasks at ordinary levels of performance as a result of safety measures taken to limit the spread of COVID-19. +• Future outbreaks requiring the closure of retail stores operated by the Company or the Company's wholesale customers; +• Decreased retail traffic resulting from social distancing measures. +• Negative effects on consumer spending due to general macroeconomic conditions, decreased disposable income and increased unemployment. +• Wholesale and distributor customer order cancellations due to lower consumer demand. +• Decline in the performance or financial condition of the Company’s major wholesale customers as a result of retail store closures, bankruptcy or liquidation. +• Disruption to the operations of the Company’s distribution centers and its third-party manufacturers because of facility closures, reductions in operating hours, labor or material shortages, travel limitations or mass transit disruptions. +• Additional expenses related to mitigating the pandemic’s impact on regular operations. +• Supply chain disruption effecting the Company's ability to receive and distribute goods as well as increases in supply chain costs. Disruptions in the supply chain have had an adverse effect and may continue to have an adverse effect on the Company's ability to meet consumer demand and financial results. +• Continued volatility in the availability and prices for commodities and raw materials used in the Company's products and related inflationary pressures. +11 +• Increased cyber security risk due to the increase in the number of employees working remotely. +The disruption to the global economy and the Company's business may lead to triggering events indicating that the carrying value of certain assets, such as long-lived assets, intangibles and goodwill, may not be recoverable. Any required non-cash impairment charges will adversely affect the Company's results of operations. +The COVID-19 pandemic may also affect the Company's operating and financial results in a manner that is not presently known to the Company or that the Company does not currently believe presents significant risks to its operations. +Business and Operational Risks +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated and associate its brands with styles that are no longer popular, which would decrease demand for its products. Such failures could result in reduced sales, excess inventory, trade name impairments, lower gross margin and other adverse impacts on the Company’s operating results. +Significant capacity constraints, production disruptions, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. The Company may experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, failure to make products that meet applicable quality standards, or increases in manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Other adverse developments, such as the COVID-19 pandemic, could cause significant production and shipping delays. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor disputes or severe weather due to climate change. These issues have in the past and may in the future delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher costs, which could have an adverse impact on the Company’s business and financial condition. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have an adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +12 +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success depends on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company’s consumer-direct operations continue to require substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s consumer-direct operations, including its brick and mortar locations as well as its eCommerce and mobile channels, require substantial fixed investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company also has substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar consumer-direct operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs. The success of its consumer-direct operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company has made and will continue to make significant investments in building technologies and digital capabilities. As omni-channel retailing continues to evolve, the Company’s customers are increasingly more likely to shop across multiple channels that work in tandem to meet their needs. The Company’s failure to successfully respond to these factors could adversely affect the Company’s consumer-direct business, as well as limit the Company's ability to successfully develop and expand the omni-channel experience for customers, damage its reputation and brands, and have an adverse effect on the Company’s results of operations and financial position. +The Company’s reputation and competitive position depend on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could be subject to negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Disruption of the Company’s information technology systems could adversely affect the Company’s business. +The Company’s information technology systems are critical to the operations of its business. Any future material interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems +13 +and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistics and distribution systems include computer-controlled and automated equipment, which are subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. These operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers or other events over which the Company has no control, such as the COVID-19 pandemic. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity depends upon the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected. +The Company faces risks associated with its growth strategy and acquiring businesses. +The Company has expanded its products and markets in part through strategic acquisitions, including the acquisition of the Sweaty Betty ® brand in the third quarter of fiscal 2021, and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits of the acquisition on a timely basis or at all; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company may not be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but still incur material costs in connection with an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s international operations may be affected by legal, regulatory, political and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political and economic risks. These include: +• the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• unexpected changes in regulatory requirements; and +• new tariffs or other barriers in some international markets, including China. +The Company is also subject to general political and economic risks in connection with its international operations, including: +• political instability and terrorist attacks; +• differences in business culture; +• different laws governing relationships with employees and business partners; +14 +• changes in diplomatic and trade relationships, including with China; and +• general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the U.S. or foreign countries upon the import or export of the Company's products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have an adverse effect on the Company’s business in the future or may require the Company to exit a particular market or significantly modify the Company's current business practices. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, the Company's foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. As the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits denominated in foreign currencies are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. The Company may seek to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, but the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on the Company’s business and results of operations. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• In the wholesale business, sales of footwear depend on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• Changes to the Company's estimated annual tax rate which is based on projections of its domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• The Company's earnings are also sensitive to a number of factors that are beyond the Company’s control, including certain manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates are based upon their own opinions and are often different from the Company’s estimates or expectations. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s results of operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global, regional or local economic conditions, and how such conditions may impact them. Disposable income and consumer spending may decline due to recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, inflation, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer +15 +spending could adversely affect demand for the Company’s products, which could adversely affect the Company's results of operations. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and consumer-direct footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able, or elect, to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and consumer-direct businesses. The Company’s competitors may own or license brands with greater name recognition; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences quickly will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are dependent on future weather conditions and its ability to react to changes in weather conditions. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets affecting the Company's distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could have an adverse impact on the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact the Company's third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet consumers’ demands and, in turn, the Company's results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 170 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts and concerns regarding public health threats, such as the COVID-19 pandemic, have created and may in the future create significant global economic and political uncertainties that may have adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which the Company operates could have an adverse effect on the Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in China or any other market in which the Company operates, or in its industry. +16 +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Financial Risks +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate it. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions, including those due to changes in trade relations between the U.S. and other countries, may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products depends on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, transportation and shipping, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases a majority of the pigskin hides used in its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have an adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on non-cash undistributed earnings that it intends to permanently reinvest in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have an adverse effect on its results of operations and financial position. +17 +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. The final determination of any of these examinations could have an adverse effect on the Company’s results of operations and financial position. +An impairment of goodwill or other intangibles could have an adverse impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect the Company’s results of operations, such as the impairment recorded associated with the Sperry trade name recorded in fiscal 2020. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and the Company may be unable to satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +Legal and Regulatory Risks +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive depends upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination +18 +by the licensor of any of these license agreements could have an adverse effect on the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations in the countries and territories in which the Company operates and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties, could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company's operations have become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible adverse impact on its financial condition and results of operations. The Company's insurance coverage may be insufficient to cover all losses and would not remedy damage to the Company's reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s consumer-direct operations. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Various third parties have brought, and in the future could bring actions against the Company alleging health-related or other harm arising from non-compliance. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +19 +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. For example, regulatory actions, punitive class actions lawsuits and individual lawsuits have been filed against the Company alleging claims relating to property damage, remediation and human health effects, among other claims, arising from the Company’s operations, including its handling, storage, treatment, transportation and/or disposal of waste. These claims are discussed in more detail in Note 17 to the consolidated financial statements. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company that might benefit the Company's stockholders. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to replace the majority of the Company's directors and take other corporate actions that may be beneficial to the Company’s stockholders. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could negatively impact the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company is subject to a broad array of applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If the Company is not able to comply with any applicable requirements, the Company's reputation could be negatively impacted and the Company may be subject to proceedings or actions against it by governmental entities or others. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to remain in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, the Company’s ability to effectively engage customers via personalized marketing may decrease which could potentially impact growth. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, such remediation efforts may require it to undertake remediation efforts. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could impact growth opportunities. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +The Company is also subject to U.S. and international data privacy and cybersecurity laws and regulations, which may impose fines and penalties for noncompliance and may have an adverse effect on the Company's operations. For example, the General Data Protection Regulation ("GDPR"), which applies in all European Union member states introduced new data protection +20 +requirements in the European Union and substantial fines for breaches of the data protection rules. GDPR increases our responsibility and potential liability in relation to personal data that we collect, process and transfer, and we have put in place additional mechanisms designed to ensure compliance with the new data protection rules. Any failure to comply with these rules and related national laws of European Union member states, could lead to government enforcement actions and significant penalties against us, and could adversely affect our business, financial condition, cash flows and results of operations. In addition, the California Consumer Privacy Act (“CCPA”) limits how we may collect and use personal data. The effects of the CCPA governs the Company's data processing practices and policies. Additionally, other states have adopted, or are considering enacting, similar laws that may affect the Company's data processing practices and policies. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company's internal control policies and procedures may not protect it from reckless or criminal acts committed by its employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in an adverse effect on the results of operations or financial condition. +Item 1B. Unresolved Staff Comments +None. +Item 2. Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 307,000 square feet in Rockford, Michigan, as well as leased facilities of approximately 102,000 square feet in Waltham, Massachusetts and 101,000 square feet in the United Kingdom.. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center of approximately 468,000 square feet in Howard City, Michigan; a leased distribution center of approximately 242,000 square feet in Ontario, Canada and a leased distribution center of approximately 125,000 square feet in Heerhugowaard, Netherlands. +The Company also leases or owns offices, showrooms and other facilities throughout the U.S., Canada, the United Kingdom, continental Europe, Hong Kong and China to meet its operational requirements. In addition, the Company operates 143 retail stores primarily through leases with various third-party landlords in the U.S., United Kingdom, and Canada that collectively occupy approximately 325,000 square feet. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. For a discussion of legal matters, see Note 17 to the Company's Consolidated Financial Statements. +Item 4. Mine Safety Disclosures +Not applicable. +Supplemental Item. Information about Executive Officers +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of January 31, 2022. The information provided below the table lists the business experience of each such +21 +Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, at the pleasure of management. +Name Age Positions held with the Company +Kyle L. Hanson 56 Senior Vice President, General Counsel and Secretary +Brendan L. Hoffman 53 President and Chief Executive Officer +Christopher E. Hufnagel 49 President, Global Brand - Merrell +Amy M. Klimek 48 Senior Vice President, Global Human Resources +Isabel Soriano 51 President, International +Michael D. Stornant 55 Senior Vice President, Chief Financial Officer and Treasurer +James D. Zwiers 54 Executive Vice President and President, Global Operations Group +Kyle L. Hanson has served the Company as Senior Vice President, General Counsel and Secretary since June 2018. From March 2014 through June 2018, she was Vice President, General Counsel and Corporate Secretary at The Buckle, Inc., a publicly traded footwear and apparel retailer. +Brendan L. Hoffman has served the Company as Chief Executive Officer since January 2022 and as President since September 2020. From October 2015 through August 2020, he was the Chief Executive Officer and President of Vince Holding Corp., a publicly-traded global apparel brand and retailer. +Christopher E. Hufnagel has served the Company as President, Merrell since September 2019. From July 2018 through September 2019, he served as President, CAT Footwear. From January 2013 through July 2018, he served as Senior Vice President and Head of Corporate Strategy. +Amy M. Klimek has served the Company as Senior Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. +Isabel Soriano has served the Company as President, International, since June 2021. From June 2018 to May 2021, she served as Vice President and Managing Director of EMEA. From April 2014 to June 2018, she served as Vice President and General Manager for Vans, Timberland and Kipling in South America at VF Corporation, a publicly traded footwear and apparel retailer. +Michael D. Stornant has served the Company as Senior Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. +James D. Zwiers has served the Company as Executive Vice President since February 2017 and President, Global Operations Group since January 2021. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group . +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The number of stockholders of record on February 11, 2022, was 684. +A quarterly dividend of $0.10 per share was declared on February 9, 2022. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2022. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s Small Cap 600 Index and the Standard & Poor’s 600 Footwear Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +22 +Five-Year Cumulative Total Return Summary +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2021. +Issuer Purchases of Equity Securities +Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (October 3, 2021 to November 6, 2021) +Common Stock Repurchase Program (1) +— $ — — $ 460,584,931 +Employee Transactions (2) +10,988 $ 34.36 +Period 11 (November 7, 2021 to December 4, 2021) +Common Stock Repurchase Program (1) +101,778 $ 31.08 101,778 $ 457,420,278 +Employee Transactions (2) +— $ — +Period 12 (December 5, 2021 to January 1, 2022) +Common Stock Repurchase Program (1) +332,916 $ 28.80 332,916 $ 447,828,564 +Employee Transactions (2) +— $ — +Total for the fourth Quarter Ended January 1, 2022 +Common Stock Repurchase Program (1) +434,694 $ 29.35 434,694 $ 447,828,564 +Employee Transactions (2) +10,988 $ 34.36 +(1) On September 11, 2019, the Company’s Board of Directors approved a common stock repurchase program that authorized the repurchase of $400.0 million of common stock over a four-year period, incremental to the $113.4 million available as of that date for repurchases under the previous program. Since that date, the Company repurchased $65.6 million of common stock. The annual amount of any stock repurchases is restricted under the terms of the Company's amended senior credit facility and senior notes indenture. +(2) Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The +23 +Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +Item 6. Reserved +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s vision statement is “ to build a family of the most admired performance and lifestyle brands on earth ” and the Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global consumer-direct footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 170 countries and territories at January 1, 2022, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At January 1, 2022, the Company oper ated 143 re tail stores in the U.S., United Kingdom, and Canada an d 65 consumer-direct eCommerce sites. +On July 31, 2021, the Company entered into a definitive agreement to acquire 100% of the outstanding shares of Lady Leisure InvestCo Limited. The acquisition was completed on August 2, 2021 for $417.4 million, which is net of acquired cash of $7.4 million. Lady Leisure InvestCo Limited owns the Sweaty Betty ® brand and activewear business, a premium women’s activewear brand. The acquisition was funded with cash on hand and borrowings under the Company’s Revolving Facility. +The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2021 and 2020. A discussion of a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2020 and 2019 has been omitted from this Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the SEC on February 26, 2021. +Known Trends Impacting Our Business +The global impact of the COVID-19 pandemic continues to affect the Company’s business. Most importantly, the Company remains focused on the health and safety of its employees, customers and partners around the world. In accordance with regulatory guidance and protocols promulgated by health authorities and government officials, the Company continues to execute a number of enhanced business practices including temporary office closures, travel restrictions, enhanced cleaning procedures and social distancing designed to protect all employees, customers and partners. +Following the onset of the pandemic, the Company further prioritized brand investments in the Company’s owned eCommerce sites. The Company’s brands’ online growth accelerated due to the investments in this channel and consumer preference changes in favor of digital purchases. The Company continues to prioritize eCommerce investments including digital leadership, marketing investments in digital platforms, developing richer content and storytelling, and optimizing digital user experiences to increase conversion. The Company is offering incremental exclusive products through owned eCommerce sites, and the Company has enhanced the online customer shopping experience. +During the third quarter of 2021, a significant portion of the Company’s contract manufacturer’s production capacity in Vietnam was subject to government mandated shutdowns due to COVID-19. Contract manufacturers in certain other Asia Pacific countries were also subject to closures, reduced capacity and production delays due to COVID-19. Factories reopened during October 2021, although some did not reopen at full capacity. These production capacity restraints significantly negatively impacted, and are expected to continue to significantly negatively impact, the Company’s previously planned inventory production and in turn, deliveries to wholesale customers. +The COVID-19 pandemic has had a material adverse impact, and is expected to continue to have an adverse impact, on the Company’s financial results. In addition to the contract manufacturer closures during the third quarter discussed above, the effects of the pandemic caused disruption in the global supply chain due to vessel shortages, containers damaged and lost in transit, labor and container shortages and U.S. port congestion that resulted in transportation delays that interrupted the flow of the Company’s inventory and caused delays of shipments to wholesale partners during fiscal 2021. The Company expects certain aspects of the disruption in the global supply chain to continue, which may negatively impact results in fiscal 2022. +24 +Expenses related to the COVID-19 pandemic incurred in fiscal 2021 included $26.1 million of costs primarily for incremental air freight cost to expedite the delivery of inventory resulting from production and shipping delays. Expenses related to the COVID-19 pandemic incurred in fiscal 2020 included $37.6 million of costs related to severance expenses, credit loss expenses, air freight related to production delays, facility exit costs and other costs. +The Company continues to monitor the ongoing impacts of COVID-19, including developments that are outside the Company’s control, such as the planned return to full production of factories in Vietnam and certain other Asia Pacific countries and the planned shift of production capacity to other countries following factory closures. These developments and other potential impacts of COVID-19, such as new or prolonged factory closures and other adverse impacts on the global supply chain affecting the planned delivery of inventory, could materially adversely impact revenue growth as well as profitability in future periods. +2021 FINANCIAL OVERVIEW +• Revenue was $2,414.9 million for 2021, representing an increase of 34.8% compared to the prior year's revenue of $1,791.1 million. The increase reflects a 23.6% increase from the Michigan Group, a 34.5% increase from the Boston Group and a 18.8% increase on Sweaty Betty ® revenue of $117.3 million. Changes in foreign exchange rates increased revenue by $25.3 million during 2021. Owned eCommerce revenue increased 39.7% during 2021 compared to 2020. +• Gross margin for 2021 was 42.6%, an increase of 150 basis points from 2020. +• The effective tax rate in 2021 was 16.6%, compared to 24.7% in 2020. +• Diluted earnings per share in 2021 was $0.81, compared to a diluted loss per share of $1.70 in 2020. +• The Company declared cash dividends of $0.40 per share in 2021 and 2020. +• Cash flow provided by operating activities was $86.8 million and $309.1 million for 2021 and 2020, respectively. +• Compared to the prior year, inventory increased $122.4 million, or 50.3% . +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +(In millions, except per share data) 2021 2020 Percent Change +Revenue +$ 2,414.9 $ 1,791.1 34.8 % +Cost of goods sold +1,385.0 1,055.5 31.2 % +Gross profit +1,029.9 735.6 40.0 % +Selling, general and administrative expenses +817.8 639.4 27.9 % +Impairment of intangible assets — 222.2 (100.0) +Environmental and other related costs, net of recoveries 56.4 11.1 408.1 % +Operating profit (loss) 155.7 (137.1) 213.6 % +Interest expense, net +37.4 43.6 (14.2) % +Debt extinguishment and other costs 34.3 5.5 523.6 +Other expense (income), net 3.7 (2.1) 276.2 % +Earnings (loss) before income taxes 80.3 (184.1) 143.6 % +Income tax expense (benefit) 13.3 (45.5) 129.2 % +Net earnings (loss) 67.0 (138.6) 148.3 % +Less: net earnings (loss) attributable to noncontrolling interests (1.6) (1.7) 5.9 % +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ 68.6 $ (136.9) 150.1 % +Diluted earnings (loss) per share $ 0.81 $ (1.70) 147.6 % +REVENUE +Revenue was $2,414.9 million for 2021, representing an increase of 34.8% compared to the prior year's revenue of $1,791.1 million. The change in revenue reflected a 23.6% increase from the Michigan Group and a 34.5% increase from the Boston Group. The Michigan Group's revenue increase was driven by high-forties increase from Hytest ® , low-thirties increase from Cat ® , high-twenties increase from Wolverine ® , mid-twenties increase from Hush Puppies ® , low-twenties increase from Harley- +25 +Davidson ® , low-twenties increase from Merrell ® , and low-teens increase from Bates ® . The Boston Group’s revenue increase was driven by high-fifties increase from Saucony ® , high-twenties increase from Kids’, and mid-twenties increase from Sperry ® . International revenue represented 34.8%, and 31.1% of total reported revenues in 2021 and 2020, respectively. Sweaty Betty ® contributed $117.3 million to the current year revenue increase. Changes in foreign exchange rates increased revenue by $25.3 million during 2021. Owned eCommerce revenue increased during 2021 by 39.7% compared to 2020, including a 21.4% contribution from the Sweaty Betty ® acquisition. +GROSS MARGIN +For 2021, the Company’s gross margin was 42.6%, compared to 41.1% in 2020. The gross margin increase was driven by favorable product mix and average selling price through the Company's direct to consumer channel (110 basis points), the contribution from the Sweaty Betty ® acquisition (80 basis points), and favorable product mix and average selling price across the Company's brands mainly attributable to Saucony ® , Merrell ® and Wolverine ® (80 basis points), partially offset by incremental air freight costs resulting from production and shipping delays caused by the COVID-19 pandemic (140 basis points). +OPERATING EXPENSES +Operating expenses increased $1.5 million in 2021, to $874.2 million. The increase was driven by higher general and administrative costs ($61.7 million), higher advertising costs ($59.8 million), higher environmental and other related costs, net of recoveries ($45.3 million), higher selling costs ($34.2 million), higher incentive compensation costs ($22.5 million), higher distribution costs ($16.9 million), higher acquisition costs ($7.5 million), and higher product development costs ($5.1 million). These increases were partially offset by lower impairment of intangible assets ($222.2 million) and lower non-operating costs incurred due to the COVID-19 pandemic ($29.4 million). Environmental and other related costs were $73.9 million and $19.4 million in 2021 and 2020, respectively. The increase in environmental and other related costs in 2021 is due to settlement accruals recorded. See Note 17 to the Company's Consolidated Financial Statements for further discussion. +INTEREST, OTHER AND TAXES +Net interest expense was $37.4 million in 2021 compared to $43.6 million in 2020. Interest expense decreased in the current year due to the lower average debt balances outstanding on the Company's credit facility. +The Company incurred $34.0 million of debt extinguishment and other costs in connection with the extinguishment of the $250.0 million senior notes due on September 1, 2026 and $300.0 million senior notes due on May 15, 2025. The Company also incurred $0.3 million of debt extinguishment and other costs in connection with the 2021 Replacement Facility Amendment and Reaffirmation Agreement entered into on October 21, 2021. +The effective tax rate in 2021 was 16.6%, compared to 24.7% in 2020. The Company recognized discrete tax benefits in 2021 which reduced the tax expense on pretax income, resulting in a lower effective tax rate. In 2020, the Company also recognized discrete tax benefits however such benefits increased the tax benefit recognized from the pretax loss, resulting in a higher effective tax rate. +Other expense was $3.7 million in 2021 compared to other income of $2.1 million in 2020. The increase in expense was driven by higher non-service pension costs ($4.9 million) and higher losses from equity method investments ($1.8 million), partially offset by higher sublease income ($1.7 million). +REPORTABLE SEGMENTS +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Sweaty Betty ® activewear business, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate expenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. +26 +The reportable segment results for years 2021 and 2020 are as follows: +Fiscal Year +(In millions) 2021 2020 Change Percent Change +REVENUE +Wolverine Michigan Group $ 1,298.9 $ 1,051.0 $ 247.9 23.6 % +Wolverine Boston Group 935.8 696.0 239.8 34.5 % +Other +180.2 44.1 136.1 308.6 % +Total +$ 2,414.9 $ 1,791.1 $ 623.8 34.8 % +OPERATING PROFIT (LOSS) +Wolverine Michigan Group $ 245.3 $ 179.9 $ 65.4 36.4 % +Wolverine Boston Group 149.3 88.1 61.2 69.5 % +Other +14.3 1.6 12.7 793.8 % +Corporate +(253.2) (406.7) 153.5 37.7 % +Total +$ 155.7 $ (137.1) $ 292.8 213.6 % +Further information regarding the reportable segments can be found in Note 18 to the consolidated financial statements. +Wolverine Michigan Group +The Michigan Group’s revenue increased $247.9 million, or 23.6%, in 2021 compared to 2020. The increase was driven by high-forties increase from Hytest ® , low-thirties increase from Cat ® , high-twenties increase from Wolverine ® , mid-twenties increase from Hush Puppies ® , low-twenties increase from Harley-Davidson ® , low-twenties increase from Merrell ® , and low-teens increase from Bates ® . The increase across all brands is due to economic recovery from the effects of the COVID-19 pandemic experienced in the prior period as a result of the closure of brick-and-mortar stores in 2020, as well as accelerated growth from Merrell ® , Cat ® and Wolverine ® resulting from strength in the outdoor and work categories. +The Michigan Group’s operating profit increased $65.4 million, or 36.4%, in 2021 compared to 2020. The operating profit increase was due to the revenue increases and a 100 basis point increase in gross margin, partially offset by a $50.9 million increase in selling, general and administrative costs. The increase in gross margin in the current year period was due to improved product mix, including higher margin eCommerce sales, partially offset by increased product and shipping costs including air freight. The increase in selling, general and administrative expenses in 2021 was primarily due to higher advertising costs and higher employee costs. +Wolverine Boston Group +The Boston Group’s revenue increased $239.8 million, or 34.5%, in 2021 compared to 2020. The increase was driven by high-fifties increase from Saucony ® , high-twenties increase from Kids’ and mid-twenties increase from Sperry ® . The increase across all brands is due to economic recovery from the effects of the COVID-19 pandemic experienced in the prior period as a result of closure of brick-and-mortar stores in 2020, as well as accelerated growth from Saucony ® resulting from strength in the running category and innovative product launches. +The Boston Group’s operating profit increased $61.2 million, or 69.5%, in 2021 compared to 2020. The operating profit increase was due to the revenue increases and a 40 basis point increase in gross margin, partially offset by a $46.0 million increase in selling, general and administrative costs. The increase in gross margin in the current year period was due to improved product mix including higher margin eCommerce sales, partially offset by increased product and shipping costs including air freight. The increase in selling, general and administrative expenses in 2021 was primarily due to higher advertising costs and higher employee costs. +Other +The Other category's revenue increased $136.1 million, or 308.6%, in 2021 compared to 2020. The revenue increase was driven by low-forties increase in the performance leathers business and an $117.3 million contribution from the Sweaty Betty ® acquisition. +Corporate +Corporate expenses decreased $153.5 million in 2021 compared to 2020 primarily due to the impairment of the Sperry trade name in 2020 ($222.2 million) and lower non-operating costs due to the COVID-19 pandemic ($29.2 million), partially offset by higher environmental and other related costs ($45.3 million), higher incentive compensation and bonus expense ($28.4 million), higher wages and employee cost ($13.1 million), and higher acquisition costs ($7.5 million). +27 +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) 2021 2020 +Cash and cash equivalents $ 161.7 $ 347.4 +Debt 966.8 722.5 +Available Revolving Facility (1) +769.2 793.9 +(1) Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Facility. +Liquidity +Cash and cash equivalents of $161.7 million as of January 1, 2022 were $185.7 million lower compared to January 2, 2021. The decrease is due primarily to the acquisition of Sweaty Betty ® for $417.4 million, share repurchases of $39.6 million, cash dividends paid of $33.5 million, additions to property, plant, and equipment of $17.6 million, shares acquired related to employee stock plans of $14.1 million and payments of debt issuance and debt extinguishment costs of $10.4 million, partially offset by net revolver borrowings of $225.0 million, cash provided by operating activities of $86.8 million, and net borrowings of long-term debt of $20.0 million. The Company had $769.2 million of borrowing capacity available under the Revolving Facility as of January 1, 2022. Cash and cash equivalents located in foreign jurisdictions totaled $133.4 million as of January 1, 2022. +The Company funded the purchase price for the Sweaty Betty ® acquisition through a combination of cash on hand and borrowings under the Revolving Facility. +Cash flow from operating activities is expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends, pursue acquisitions and for general corporate purposes. +The Company may purchase up to an additional $447.8 million of shares under its existing common stock repurchase program which expires in 2023. The common stock repurchase program does not obligate the Company to acquire any shares and may be suspended at any time. The Company repurchased $39.6 million and $21.0 million of shares during 2021 and 2020, respectively. +A detailed discussion of environmental remediation costs is found in Note 17 to the Company's Consolidated Financial Statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual affected site. As of January 1, 2022, the Company has a reserve of $85.7 million, of which $24.5 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $61.2 million recorded in other liabilities and expected to be paid over the course of up to 25 years. The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates. +Note 17 to the Company's Consolidated Financial Statements also includes a detailed discussion of environmental litigation matters. The Company has established an accrual in the amount of $50.7 million, and made related payments of $0.6 million, with respect to certain of these matters for the year ended January 1, 2022, as discussed in Note 17. The Company expects to disburse payments during 2022 equal to the remainder of the established accrual. +Developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +The future impact of the COVID-19 pandemic on the Company’s statement of operations and cash flows remains uncertain. The actions the Company has taken and continues to take to improve the Company’s liquidity are discussed above in this Item 7 and below under “Financing Arrangements.” +28 +The Company expects to meet its contractual obligations through its typical sources of liquidity in the normal course of business, such as coash from operating activities, and believes it has the financial resources to satisfy these contractual obligations. The Company had the following contractual obligations due by period at January 1, 2022: +(In millions) Total Less than +1 year 1-3 years 3-5 years More than +5 years +Long-term debt obligations (1) +$ 1,176.9 $ 263.8 $ 77.6 $ 226.7 $ 608.8 +Operating lease obligations +193.2 35.9 44.9 35.8 76.6 +Purchase obligations (2) +988.0 988.0 — — — +Supplemental Executive Retirement Plan +42.1 3.9 8.1 8.3 21.8 +Municipal water improvements (3) +46.9 18.6 28.3 — — +TCJA transition obligation +28.4 0.4 16.3 11.7 — +Total (4) +$ 2,475.5 $ 1,310.6 $ 175.2 $ 282.5 $ 707.2 +(1) Includes principal and interest payments on the Company’s long-term debt. Estimated future interest payments on outstanding debt obligations are based on interest rates as of January 1, 2022. Actual cash outflows may differ significantly due to changes in underlying interest rates. +(2) Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) Under the terms of a Consent Decree resolving certain civil and regulatory actions, the Company is obligated to contribute towards the costs of extending municipal water lines, developing a replacement wellfield and making certain improvements to Plainfield Township’s existing water treatment plant, all subject to an aggregate cap of $69.5 million. During 2021 and 2020, the Company made payments of $12.9 and $9.7 million towards the total cap, respectively. Due to the uncertainty of the timing and amounts related to the Company's other environmental remediation costs, they have been excluded from this table. See Note 17 to the Company's Consolidated Financial Statements for additional information. +(4) The total amount of unrecognized tax benefits on the consolidated balance sheet at January 1, 2022 is $10.9 million. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Financing Arrangements +On October 21, 2021, the Company entered into a 2021 Replacement Facility Amendment and Reaffirmation Agreement (the “Amendment”) to the Company's Credit Facility (as amended and restated, the "Credit Agreement"). The Amendment amended and restated the Credit Agreement to, among other things: (i) provide for a term loan A facility (the “Term Facility”) in an aggregate principal amount of $200.0 million, which replaced the existing term loan A; (ii) provide for an increased revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”) with total commitments of $1.0 billion, an increase of $200.0 million from the existing Revolving Facility; and (iii) set the LIBOR floor to 0.000%, a decrease of 0.750%. The maturity date of the loans under the Senior Credit Facilities was extended to October 21, 2026. The Amendment provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $2.0 billion unless certain specified conditions set forth in the amended senior credit facility are met. The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026. +On August 26, 2021, the Company issued $550.0 million aggregate principal debt amount of 4.000% senior notes due on August 15, 2029. Related interest payments are due semi-annually beginning February 15, 2022. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. The proceeds from the senior notes were used to extinguish the Company’s $250.0 million senior notes due on September 1, 2026 and $300.0 million senior notes due on May 15, 2025. +As of January 1, 2022, the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company’s debt at January 1, 2022 totaled $966.8 million compared to $722.5 million at January 2, 2021. The Company expects to use the current borrowings to fund organic growth initiatives, reduce debt, pay dividends, pursue acquisitions and for general corporate purposes. The increased debt position resulted from borrowings under the Revolving Facility to fund the Sweaty Betty ® acquisition as well as the new Term Facility's increased principal balance resulting from the Amendment. +29 +Cash Flows +The following table summarizes cash flow activities: +Fiscal Year Ended +(In millions) January 1, +2022 January 2, +2021 +Net cash provided by operating activities $ 86.8 $ 309.1 +Net cash provided by (used in) investing activities (437.3) 6.1 +Net cash provided by (used in) financing activities 169.3 (154.0) +Additions to property, plant and equipment 17.6 10.3 +Depreciation and amortization 33.2 32.8 +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during 2021 was lower compared to 2020, due primarily to an increase in net working capital representing a use of cash of $88.4 million. Working capital balances were unfavorably impacted by an increase in inventories of $77.2 million, an increase in accounts receivable of $49.2 million, and an increase in other operating assets of $2.3 million, partially offset by an increase in accounts payable of $23.0 million and an increase in other operating liabilities of $15.7 million. Operating cash flows were favorably impacted by stock-based compensation expense of $38.1 million, environmental and other related costs of $33.7 million, depreciation and amortization expense of $33.2 million, pension expense of $14.0 million and debt extinguishment costs of $5.8 million, partially offset by deferred income taxes of $14.7 million. +Investing Activities +The Company acquired the Sweaty Betty ® brand and activewear business in 2021 resulting in a net cash payment of $417.4 million. The Company also made capital expenditures of $17.6 million and $10.3 million in years 2021 and 2020, respectively, for building improvements, new retail stores, distribution operations improvements and information system enhancements. The Company also received $26.8 million of proceeds during the second quarter of 2020 related to a company-owned life insurance policy. During the first quarter of 2020, the Company made a contingent consideration payment of $5.5 million related to the Saucony ® Italy distributor acquisition. +Financing Activities +The current year debt activity includes net borrowings under the Revolving Facility of $225.0 million. The current year revolver borrowings were used to fund a portion of the Sweaty Betty ® brand and activewear business acquisition. On August 26, 2021, the Company issued $550.0 million aggregate principal amount of senior notes, and the proceeds from these senior notes were used to extinguish the Company’s $250.0 million senior notes due on September 1, 2026 and $300.0 million senior notes due on May 15, 2025. The October 21, 2021 Replacement Facility Amendment and Reaffirmation Agreement also provided for a term facility that replaced the prior term loan A, resulting in a $20.0 million increase in long-term debt. Payments of debt issuance costs of $10.4 million were associated with the current year debt transactions. The prior year activity included net revolving credit payments of $360.0 million, net long-term debt borrowings of $287.5 million that included issuance of senior notes and quarterly term loan payments, and payments of debt issuance costs of $6.4 million. +The Company paid $14.1 million and $24.8 million in 2021 and 2020, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans and received $17.1 million and $9.8 million in proceeds from the exercise of stock options in 2021 and 2020, respectively. The Company also repurchased $39.6 million and $21.0 million of its common stock during 2021 and 2020, respectively. The Company received $4.8 million and $1.8 million from noncontrolling owners of the Company’s China joint venture to support the growth of the joint venture in 2021 and 2020, respectively. During 2020, the Company terminated an interest rate swap and the fair value of the swap of $7.3 million was repaid. +The Company declared cash dividends of $0.40 per share in each of 2021 and 2020. Dividends paid totaled $33.5 million and $33.6 million for 2021 and 2020, respectively. A quarterly dividend of $0.10 per share was declared on February 9, 2022 to shareholders of record on April 1, 2022. +NEW ACCOUNTING STANDARDS +See Note 2 to the Company's Consolidated Financial Statements for information related to new accounting standards. +30 +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +The preparation of the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s Consolidated Financial Statements. Significant accounting policies are summarized in Note 1 to the consolidated financial statements. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the purchase, shipment or delivery of branded products or to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the year ended January 1, 2022, related to the Company’s contract liabilities was nominal. +Inventory +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished goods inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished goods inventories in foreign countries and certain domestic finished goods inventories. The average cost of inventory is used for finished goods inventories of the Company’s consumer-direct business and Sweaty Betty ® inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory +31 +balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Business Combinations +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" section below. Refer to Note 19 “Business Acquisitions” for additional discussion. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions about expected future operating performance, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company records an impairment charge equal to the excess of the recorded goodwill over the fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible assets are less than their carrying value. The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. The Company did not recognize any impairment charges for goodwill during years 2021, 2020 and 2019. No impairment charges were recognized for the Company's intangible assets during years 2021 and 2019. In the fourth quarter of 2020, after the completion of the annual impairment testing, the Company recorded a $222.2 million impairment charge for the Sperry trade name. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sperry trade name impairment. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Refer to Note 17, “Litigation and Contingencies” for additional discussion on estimated environmental remediation costs. +32 +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters as described in Note 17 to the Company's Consolidated Financial Statements. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17 “Litigation and Contingencies”. +Retirement Benefits +The determination of the obligation and expense for retirement benefits depends upon the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans' expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 3.09% at January 1, 2022, compared to 2.85% at January 2, 2021. Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.75% and 6.75% for fiscal 2021 and 2020, respectively. This rate is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. Because income tax adjustments in certain jurisdictions can be significant, the Company records accruals representing management’s best estimate of the resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated outcome. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +The Company intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore not established a deferred tax liability on that amount of foreign unremitted earnings. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +33 +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. The Company does not believe that there has been a material change in the nature of the Company’s primary market risk exposures, including the categories of market risk to which the Company is exposed and the particular markets that present the primary risk of loss to the Company. As of the date of this Annual Report on Form 10-K, the Company does not know of any material change in the near-term in the general nature of its primary market risk exposure. +Under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging ,, the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, United Kingdom, Colombia, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Colombian peso, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At January 1, 2022 and January 2, 2021, the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $296.7 million and $250.7 million, respectively, with maturities ranging up to 538 and 538 days, respectively. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations and comprehensive income. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. At January 1, 2022, a stronger U.S. dollar compared to certain foreign currencies decreased the value of these investments in net assets by $20.0 million from their value at January 2, 2021. At January 2, 2021, a weaker U.S. dollar compared to foreign currencies increased the value of these investments in net assets by $10.8 million from their value at December 28, 2019. +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on the Incremental Term Loan borrowings and any borrowings under the Revolving Facility. The Company’s total variable-rate debt was $425.0 million at January 1, 2022 and the Company held a forward-dated interest rate swap agreement, denominated in U.S. dollars that will effectively convert $311.3 million of this amount to fixed-rate debt. The interest rate swap derivative instrument is held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be a net liability of $0.1 million as of January 1, 2022. As of January 1, 2022, the weighted-average interest rate on the Company’s variable-rate debt, net of the impact of the interest rate swap, was 1.35%. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $4.7 million. The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +34 +Item 8. Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +36 +Consolidated Statements of Comprehensive Income (Loss) +37 +Consolidated Balance Sheets +38 +Consolidated Statements of Cash Flows +39 +Consolidated Statements of Stockholders' Equity +41 +Note 1. Summary of Significant Accounting Policies +43 +Note 2. New Accounting Standards +48 +Note 3. Earnings Per Share +48 +Note 4. Goodwill and Other Intangibles +49 +Note 5. Accounts Receivable +50 +Note 6. Revenue From Contracts With Customers +50 +Note 7. Inventories +52 +Note 8. Debt +52 +Note 9. Property, Plant and Equipment +53 +Note 10. Leases +53 +Note 11. Derivative Financial Instruments +54 +Note 12. Stock-Based Compensation +55 +Note 13. Retirement Plans +57 +Note 14. Income Taxes +60 +Note 15. Accumulated Other Comprehensive Income (Loss) +63 +Note 16. Fair Value Measurements +63 +Note 17. Litigation and Contingencies +64 +Note 18. Business Segments +66 +Note 19. Business Acquisition +68 +Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +71 +35 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) 2021 2020 2019 +Revenue $ 2,414.9 $ 1,791.1 $ 2,273.7 +Cost of goods sold 1,385.0 1,055.5 1,349.9 +Gross profit 1,029.9 735.6 923.8 +Selling, general and administrative expenses 817.8 639.4 669.3 +Impairment of intangible assets — 222.2 — +Environmental and other related costs, net of recoveries 56.4 11.1 83.5 +Operating profit (loss) 155.7 ( 137.1 ) 171.0 +Other expenses: +Interest expense, net 37.4 43.6 30.0 +Debt extinguishment and other costs 34.3 5.5 — +Other expense (income), net 3.7 ( 2.1 ) ( 4.9 ) +Total other expenses 75.4 47.0 25.1 +Earnings (loss) before income taxes 80.3 ( 184.1 ) 145.9 +Income tax expense (benefit) 13.3 ( 45.5 ) 17.0 +Net earnings (loss) 67.0 ( 138.6 ) 128.9 +Less: net earnings (loss) attributable to noncontrolling interests ( 1.6 ) ( 1.7 ) 0.4 +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ 68.6 $ ( 136.9 ) $ 128.5 +Net earnings (loss) per share (see Note 3): +Basic $ 0.82 $ ( 1.70 ) $ 1.48 +Diluted $ 0.81 $ ( 1.70 ) $ 1.44 +See accompanying notes to consolidated financial statements. +36 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income (Loss) +Fiscal Year +(In millions) 2021 2020 2019 +Net earnings (loss) $ 67.0 $ ( 138.6 ) $ 128.9 +Other comprehensive income (loss) net of tax: +Foreign currency translation adjustments ( 20.0 ) 10.6 5.4 +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $ 3.0 , $( 5.2 ) and $ 0.2 +7.7 ( 17.6 ) 0.9 +Reclassification adjustments included in net earnings (loss), net of taxes of $ 1.4 , $ 0.4 and $( 2.2 ) +3.7 3.1 ( 7.6 ) +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $ 7.8 , $( 8.0 ) and $( 3.9 ) +29.5 ( 30.0 ) ( 14.6 ) +Amortization of prior actuarial losses, net of taxes of $ 3.0 , $ 1.4 and $ 0.5 +10.8 5.2 2.1 +Other comprehensive income (loss) 31.7 ( 28.7 ) ( 13.8 ) +Less: other comprehensive income (loss) attributable to noncontrolling interests — ( 0.2 ) — +Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. 31.7 ( 28.5 ) ( 13.8 ) +Comprehensive income (loss) 98.7 ( 167.3 ) 115.1 +Less: comprehensive income (loss) attributable to noncontrolling interests ( 1.6 ) ( 1.9 ) 0.4 +Comprehensive income (loss) attributable to Wolverine World Wide, Inc. $ 100.3 $ ( 165.4 ) $ 114.7 +See accompanying notes to consolidated financial statements. +37 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) January 1, +2022 January 2, +2021 +ASSETS +Current assets: +Cash and cash equivalents $ 161.7 $ 347.4 +Accounts receivable, less allowances of $ 28.3 and $ 33.5 +319.6 268.3 +Finished products, net 354.1 237.9 +Raw materials and work-in-process, net 11.4 5.2 +Total inventories 365.5 243.1 +Prepaid expenses and other current assets 56.9 45.4 +Total current assets 903.7 904.2 +Property, plant and equipment, net of accumulated depreciation of $ 219.1 and $ 197.2 +129.0 124.6 +Lease right-of-use assets +138.2 142.5 +Goodwill 556.6 442.4 +Indefinite-lived intangibles 718.1 382.3 +Amortizable intangibles, net 74.6 73.0 +Deferred income taxes 1.8 3.2 +Other assets 64.4 65.2 +Total assets $ 2,586.4 $ 2,137.4 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 222.1 $ 185.0 +Accrued salaries and wages 41.7 27.0 +Other accrued liabilities 222.5 150.0 +Lease liabilities 38.3 34.0 +Current maturities of long-term debt 10.0 10.0 +Borrowings under revolving credit agreements 225.0 — +Total current liabilities 759.6 406.0 +Long-term debt, less current maturities +731.8 712.5 +Accrued pension liabilities +107.4 147.0 +Deferred income taxes +118.9 35.5 +Lease liabilities, noncurrent +118.2 130.3 +Other liabilities +106.1 133.1 +Stockholders’ equity +Common stock – par value $ 1 , authorized 320,000,000 shares; 111,632,094 , and 110,426,769 shares issued +111.6 110.4 +Additional paid-in capital 298.9 252.6 +Retained earnings 1,128.2 1,093.3 +Accumulated other comprehensive loss ( 98.9 ) ( 130.6 ) +Cost of shares in treasury; 29,604,013 , and 28,285,274 shares +( 810.2 ) ( 764.3 ) +Total Wolverine World Wide, Inc. stockholders’ equity 629.6 561.4 +Noncontrolling interest +14.8 11.6 +Total stockholders’ equity 644.4 573.0 +Total liabilities and stockholders’ equity $ 2,586.4 $ 2,137.4 +See accompanying notes to consolidated financial statements. +38 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows +Fiscal Year +(In millions) +2021 2020 2019 +OPERATING ACTIVITIES +Net earnings (loss) $ 67.0 $ ( 138.6 ) $ 128.9 +Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: +Depreciation and amortization +33.2 32.8 32.7 +Deferred income taxes +( 14.7 ) ( 56.9 ) ( 9.0 ) +Stock-based compensation expense +38.1 28.9 24.5 +Pension and SERP expense +14.0 8.5 5.6 +Debt extinguishment, interest rate swap termination, and other costs 5.8 5.5 — +Impairment of intangible assets — 222.2 — +Environmental and other related costs, net of cash payments and recoveries received 33.7 31.5 48.8 +Other +( 1.9 ) ( 12.7 ) ( 11.6 ) +Changes in operating assets and liabilities: +Accounts receivable +( 49.2 ) 64.8 30.7 +Inventories +( 77.2 ) 107.2 ( 23.8 ) +Other operating assets +( 2.3 ) 7.4 ( 5.4 ) +Accounts payable +23.0 ( 18.9 ) — +Income taxes +1.6 ( 0.5 ) 3.6 +Other operating liabilities +15.7 27.9 ( 2.4 ) +Net cash provided by operating activities 86.8 309.1 222.6 +INVESTING ACTIVITIES +Business acquisition, net of cash acquired +( 417.4 ) ( 5.5 ) ( 15.1 ) +Additions to property, plant and equipment ( 17.6 ) ( 10.3 ) ( 34.4 ) +Investment in joint ventures +— ( 3.5 ) ( 8.5 ) +Proceeds from company-owned life insurance policies — 26.8 — +Other +( 2.3 ) ( 1.4 ) ( 3.5 ) +Net cash provided by (used in) investing activities ( 437.3 ) 6.1 ( 61.5 ) +FINANCING ACTIVITIES +Payments under revolving credit agreements ( 435.0 ) ( 898.0 ) ( 469.3 ) +Borrowings under revolving credit agreements 660.0 538.0 704.3 +Borrowings of long-term debt +750.0 471.0 — +Payments on long-term debt +( 730.0 ) ( 183.5 ) ( 7.5 ) +Payments of debt issuance and debt extinguishment costs +( 10.4 ) ( 6.4 ) ( 0.3 ) +Termination of interest rate swap — ( 7.3 ) — +Cash dividends paid +( 33.5 ) ( 33.6 ) ( 33.6 ) +Purchase of common stock for treasury +( 39.6 ) ( 21.0 ) ( 319.2 ) +Employee taxes paid under stock-based compensation plans +( 14.1 ) ( 24.8 ) ( 16.9 ) +Proceeds from the exercise of stock options +17.1 9.8 12.2 +Contributions from noncontrolling interests +4.8 1.8 5.7 +Net cash provided by (used in) financing activities 169.3 ( 154.0 ) ( 124.6 ) +Effect of foreign exchange rate changes +( 4.5 ) 5.6 1.0 +Increase (decrease) in cash and cash equivalents ( 185.7 ) 166.8 37.5 +Cash and cash equivalents at beginning of the year +347.4 180.6 143.1 +Cash and cash equivalents at end of the year +$ 161.7 $ 347.4 $ 180.6 +See accompanying notes to consolidated financial statements. +39 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows – continued +Fiscal Year +(In millions) +2021 2020 2019 +OTHER CASH FLOW INFORMATION +Interest paid +$ 34.6 $ 41.4 $ 32.4 +Net income taxes paid +27.8 8.6 23.2 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid 3.2 0.9 0.8 +Business acquisition not yet paid — — 5.5 +See accompanying notes to consolidated financial statements. +40 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at December 29, 2018 $ 107.6 $ 201.4 $ 1,169.7 $ ( 88.3 ) $ ( 404.4 ) $ 5.6 $ 991.6 +Net earnings 128.5 0.4 128.9 +Other comprehensive income (loss) ( 13.8 ) — ( 13.8 ) +Shares forfeited, net of shares issued under stock incentive plans ( 38,655 shares) +0.1 ( 4.2 ) ( 4.1 ) +Shares issued for stock options exercised, net ( 681,389 shares) +0.6 11.6 12.2 +Stock-based compensation expense +24.5 24.5 +Cash dividends declared ($ 0.40 per share) +( 34.9 ) ( 34.9 ) +Issuance of treasury shares ( 7,460 shares) +0.1 0.2 0.3 +Purchase of common stock for treasury ( 10,914,965 shares) +( 319.2 ) ( 319.2 ) +Purchases of shares under stock-based compensation plans ( 368,326 shares) +( 12.8 ) ( 12.8 ) +Capital contribution from noncontrolling interests 5.7 5.7 +Balance at December 28, 2019 $ 108.3 $ 233.4 $ 1,263.3 $ ( 102.1 ) $ ( 736.2 ) $ 11.7 $ 778.4 +Net loss ( 136.9 ) ( 1.7 ) ( 138.6 ) +Other comprehensive loss ( 28.5 ) ( 0.2 ) ( 28.7 ) +Shares issues, net of shares forfeited under stock incentive plans ( 1,497,478 shares) +1.5 ( 19.0 ) ( 17.5 ) +Shares issued for stock options exercised, net ( 600,041 shares) +0.6 9.3 9.9 +Stock-based compensation expense +28.9 28.9 +Cash dividends declared ($ 0.40 per share) +( 33.1 ) ( 33.1 ) +Issuance of treasury shares ( 5,479 shares) +— 0.2 0.2 +Purchase of common stock for treasury ( 877,624 shares) +( 21.0 ) ( 21.0 ) +Purchases of shares under stock-based compensation plans ( 231,617 shares) +( 7.3 ) ( 7.3 ) +Capital contribution from noncontrolling interests 1.8 1.8 +Balance at January 2, 2021 $ 110.4 $ 252.6 $ 1,093.3 $ ( 130.6 ) $ ( 764.3 ) $ 11.6 $ 573.0 +See accompanying notes to consolidated financial statements. +41 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at January 2, 2021 $ 110.4 $ 252.6 $ 1,093.3 $ ( 130.6 ) $ ( 764.3 ) $ 11.6 $ 573.0 +Net earnings (loss) 68.6 ( 1.6 ) 67.0 +Other comprehensive income 31.7 — 31.7 +Shares issued, net of shares forfeited under stock incentive plans ( 431,180 shares) +0.4 ( 8.2 ) ( 7.8 ) +Shares issued for stock options exercised, net ( 774,145 shares) +0.8 16.4 17.2 +Stock-based compensation expense +38.1 38.1 +Cash dividends declared ($ 0.40 per share) +( 33.7 ) ( 33.7 ) +Issuance of treasury shares ( 4,005 shares) +— 0.1 0.1 +Purchase of common stock for treasury ( 1,150,721 shares) +( 39.6 ) ( 39.6 ) +Purchases of shares under stock-based compensation plans ( 172,023 shares) +( 6.4 ) ( 6.4 ) +Capital contribution from noncontrolling interests 4.8 4.8 +Balance at January 1, 2022 $ 111.6 $ 298.9 $ 1,128.2 $ ( 98.9 ) $ ( 810.2 ) $ 14.8 $ 644.4 +See accompanying notes to consolidated financial statements. +42 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years 2021, 2020 and 2019 +1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids’ footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® , Sweaty Betty ® and Wolverine ® . The Company’s products are marketed worldwide through owned operations, through licensing and distribution arrangements with third parties, and through joint ventures. The Company also operates retail stores and eCommerce sites to market both its own brands and branded footwear and apparel from other manufacturers, and has a leathers division that markets Wolverine Performance Leathers™ . +On August 2, 2021, the Company completed the acquisition of Lady of Leisure InvestCo Limited (the “Acquired Company”) for $ 417.4 million, which is net of acquired cash of $ 7.4 million. The Acquired Company owns the Sweaty Betty ® brand and activewear business, a premium women’s activewear brand. See Note 19 for further discussion. +Principles of Consolidation and Basis of Presentation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. +The COVID-19 pandemic, the duration and severity of which is subject to uncertainty, has had and continues to have, an impact on the Company's business. Management's estimates and assumptions used in the preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP take into account both current and expected potential future impacts of the COVID-19 pandemic on the Company’s business based on available information. Actual results may differ materially from management’s estimates. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2021 and 2019 each had 52 weeks, and fiscal year 2020 had 53 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers . Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations and recognizes revenue upon completion of the performance obligation. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and consumer-direct revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products to the customer. Consumer-direct includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue is recognized at time of sale. The shipment of goods, or point of purchase for retail store sales, was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. +Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related +43 +expenses incurred by the Company are recorded as cost of goods sold. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the goods transfers to the customer as fulfillment activities. +Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the consumer-direct channel. The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract liabilities) on the consolidated balance sheets. Generally, billing occurs commensurate to revenue recognition resulting in contract assets. See Note 6 for additional information. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 195.4 million, $ 135.6 million and $ 119.4 million for fiscal years 2021, 2020 and 2019, respectively. Prepaid advertising totaled $ 3.6 million and $ 1.2 million as of January 1, 2022 and January 2, 2021, respectively. +Earnings Per Share +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates fair value. +Allowance for Credit Losses +The Company maintains an allowance for credit losses on accounts receivable that represents estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions. +Inventories +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished goods inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished goods inventories in foreign countries and certain domestic finished goods inventories. The average cost of inventory is used for finished goods inventories of the Company’s consumer-direct business and Sweaty Betty ® inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for buildings, leasehold improvements, furniture and fixtures, material handling systems, equipment and computer hardware and software. Normal repairs and maintenance are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line +44 +method. The depreciable lives range from 14 to 20 years for buildings, from 5 to 15 years for leasehold improvements, from 3 to 10 years for furniture, fixtures and equipment and from 3 to 5 years for software. +Leases +The Company’s leases consist primarily of corporate offices, retail stores, distribution centers, showrooms, vehicles and office equipment. The Company leases assets in the normal course of business to meet its current and future needs while providing flexibility to its operations. The Company enters into contracts with third parties to lease specifically identified assets. Most of the Company’s leases have contractually specified renewal periods. Most retail store leases have early termination clauses that the Company can elect if stipulated sales amounts are not achieved. The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised. +Under FASB ASC Topic 842, Leases , the Company has elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all of its leases. In addition, the Company has elected to account for multiple lease components as a single lease component. The Company’s leases may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease. The Company recognizes variable lease payments when the amounts are incurred and determinable. The Company has elected to account for leases of less than one year as short-term leases and accordingly does not recognize a right-of-use asset or lease liability for these leases. The Company recognizes rent expense on a straight-line basis over the lease term. +The Company subleases certain portions of leased offices and distribution centers that exceed the Company’s current operational needs. Since the Company utilizes the majority of the leased space and retains the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the term of the sublease and is recognized in other expense (income), net on the consolidated statements of operations. +The Company recognizes a lease liability in current and noncurrent liabilities equal to the present value of the fixed future lease payments using an incremental borrowing rate as of the commencement date of each lease. The incremental borrowing rate is based on an interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments. The Company also recognizes a right-of-use asset, which is equal to the lease liability as of January 1, 2022 adjusted for the remaining balance of accrued rent and unamortized lease incentives. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. +Derivatives +The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. Refer to Note 11 for further discussion regarding the Company's derivative arrangements and derivative accounting. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. The Company includes assumptions about expected future operating performance, such as forecasted growth rates and cost of capital, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value. Goodwill and indefinite-lived intangibles are considered impaired if the recorded value exceeds the fair value. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible asset are less than their carrying value. The Company would not be required to quantitatively +45 +determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. See Note 4 for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +Fair Value of Financial Instruments +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters described in Note 17. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 13 for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +46 +Stock Based Compensation +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. All stock-based awards are accounted for based on their respective grant date fair values. Compensation cost for all awards expected to vest is recognized over the vesting period, including accelerated recognition for retirement-eligible employees. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benef it is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. T he Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2021, 2020 and 2019. +Business Combination +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" accounting policy. For further discussion, refer to Note 19. +47 +2. NEW ACCOUNTING STANDARDS +The FASB has issued the following Accounting Standards Update (“ASU”) that the Company has not yet adopted. The following is a summary of the new standard. +Standard Description Effect on the Financial Statements or Other Significant Matters +ASU 2020-04, Reference Rate Reform (Topic 848); Facilitation of the Effects of Reference Rate Reform on Financial Reporting (as amended by ASU 2021-01) +Provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for the Company’s borrowing instruments under the amended senior credit facility, which use LIBOR as a reference rate, and is available for adoption effective immediately but is only available through December 31, 2022. +The Company is evaluating the impact of the new standard on its Consolidated Financial Statements. +3. EARNINGS PER SHARE +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) 2021 2020 2019 +Numerator: +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ 68.6 $ ( 136.9 ) $ 128.5 +Less: net earnings attributed to participating share-based awards +( 1.1 ) ( 0.8 ) ( 2.6 ) +Net earnings (loss) used to calculate basic earnings per share 67.5 ( 137.7 ) 125.9 +Adjustment for earnings reallocated to participating share-based awards — — 0.1 +Net earnings (loss) used to calculate diluted earnings per share $ 67.5 $ ( 137.7 ) $ 126.0 +Denominator: +Weighted average shares outstanding +82.4 81.8 85.7 +Adjustment for unvested restricted common stock +( 0.1 ) ( 0.8 ) ( 0.6 ) +Shares used to calculate basic earnings per share +82.3 81.0 85.1 +Effect of dilutive share-based awards +1.0 — 2.1 +Shares used to calculate diluted earnings per share +83.3 81.0 87.2 +Net earnings (loss) per share: +Basic +$ 0.82 $ ( 1.70 ) $ 1.48 +Diluted +$ 0.81 $ ( 1.70 ) $ 1.44 +For fiscal years 2021, 2020 and 2019, 605,774 , 1,179,088 and 133,505 outstanding stock options, respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of January 1, 2022 or January 2, 2021. The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company repurchased $ 39.6 million, $ 21.0 million and $ 319.2 million of Company common stock in fiscal years 2021, 2020 and 2019, respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 14.1 million, $ 24.8 million and $ 16.9 million of Company common stock in fiscal years 2021, 2020 and 2019, respectively, in connection with employee transactions related to stock incentive plans. +On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to amounts remaining under +48 +the previous repurchase program. The annual amount of stock repurchases is restricted under the terms of the Company's Credit Agreement. +4. GOODWILL AND OTHER INTANGIBLE ASSETS +The changes in the carrying amount of goodwill are as follows: +Fiscal Year +(In millions) 2021 2020 +Goodwill balance at beginning of the year $ 442.4 $ 438.9 +Acquisition of a business (see Note 19) 118.9 — +Foreign currency translation effects ( 4.7 ) 3.5 +Goodwill balance at end of the year $ 556.6 $ 442.4 +The Company did not recognize any goodwill impairment charges during fiscal years 2021, 2020 and 2019. The annual impairment testing indicated, for all reporting units tested quantitatively, that the fair values exceeded the respective carrying values. For the reporting units that the Company elected to test qualitatively, the Company concluded it to be more likely than not that their estimated fair values are greater than their respective carrying values. +The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 718.1 million and $ 382.3 million as of January 1, 2022 and January 2, 2021, respectively. In the fourth quarter of fiscal 2020, after the completion of the annual impairment testing, the Company recognized a $ 222.2 million impairment charge for the Sperry ® trade name resulting from reductions in the future cash flow assumptions mainly due to the impact of the COVID-19 pandemic to the Sperry ® brand and an increase in the discount rate. The Sperry ® trade name was valued using the income approach, specifically the multi-period excess earnings method with the key assumptions used in the valuation being revenue growth, operating profit, and the discount rate. The risk of future impairment for the Sperry ® trade name is dependent on key assumptions used in the determination of the trade name's fair value, such as revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin, discount rate, and assumed tax rate, or macroeconomic conditions deteriorate due to the COVID-19 pandemic and adversely affect the value of the Company's Sperry ® trade name. T he Company continues to monitor the effects of the COVID-19 pandemic, and actions taken by governments, businesses and individuals in response to the pandemic, on the global economy to assess the outlook for demand for the Company's products and the impact on the Company's business and financial performance. The carrying value of the Company’s Sperry ® trade name indefinite-lived intangible asset was $ 296.0 million as of January 1, 2022. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows: +January 1, 2022 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 119.9 $ 49.1 $ 70.8 11 +Other 20.3 16.5 3.8 3 +Total $ 140.2 $ 65.6 $ 74.6 +January 2, 2021 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 114.5 $ 44.9 $ 69.6 12 +Other 18.7 15.3 3.4 3 +Total $ 133.2 $ 60.2 $ 73.0 +Amortization expense for these amortizable intangible assets was $ 8.4 million, $ 7.1 million and $ 8.6 million for fiscal years 2021, 2020 and 2019, respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to January 1, 2022 is as follows: +(In millions) 2022 2023 2024 2025 2026 +Amortization expense $ 7.8 $ 7.4 $ 7.1 $ 6.7 $ 6.4 +49 +5. ACCOUNTS RECEIVABLE +The Company has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis that expires in the fourth quarter of fiscal 2022. Under the agreement, up to $ 17.4 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, the Company does not retain any interests in the accounts receivable and removes them from its consolidated balance sheet, but continues to service and collect the outstanding accounts receivable on behalf of the financial institution. The Company recognizes a servicing asset or servicing liability, initially measured at fair value, each time it undertakes an obligation to service the accounts receivable under the agreement. The fair value of this obligation resulted in a nominal servicing liability for all periods presented. For receivables sold under the agreement, 90 % of the stated amount is paid for in cash to the Company at the time of sale, with the remainder paid to the Company at the completion of the collection process. +The following is a summary of the stated amount of accounts receivable that was sold as well as fees charged by the financial institution. +Fiscal Year +(In millions) 2021 2020 2019 +Accounts receivable sold +$ — $ 14.1 $ 42.7 +Fees charged +— 0.1 0.2 +The fees are recorded in the other expense (income), net line item on the consolidated statements of operations. Net proceeds of this program are classified in operating activities in the consolidated statements of cash flows. There were no amounts outstanding under this program as of January 1, 2022 and January 2, 2021. +6. REVENUE FROM CONTRACTS WITH CUSTOMERS +Revenue Recognition and Performance Obligations +The Company provides disaggregated revenue for the wholesale and consumer-direct sales channels, which are reconciled to the Company’s reportable segments. The wholesale channel includes royalty revenues, which operates in a similar manner as other wholesale revenues due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation. +Fiscal Year +(in millions) 2021 2020 2019 +Wolverine Michigan Group: +Wholesale $ 1,016.8 $ 814.2 $ 1,134.9 +Consumer-direct 282.1 236.8 164.8 +Total 1,298.9 1,051.0 1,299.7 +Wolverine Boston Group: +Wholesale 695.8 508.9 743.4 +Consumer-direct 240.0 187.1 167.5 +Total 935.8 696.0 910.9 +Other: +Wholesale 74.6 40.5 57.9 +Consumer-direct 105.6 3.6 5.2 +Total 180.2 44.1 63.1 +Total revenue $ 2,414.9 $ 1,791.1 $ 2,273.7 +The Company has agreements to license symbolic intellectual property with minimum guarantees or fixed consideration. The Company is due $ 19.3 million of remaining fixed transaction price under its license agreements as of January 1, 2022, which it expects to recognize per the terms of its contracts over the course of time through December 2026 . The Company has elected to omit the remaining variable consideration under its license agreements given the Company recognizes revenue equal to what it +50 +has the right to invoice and that amount corresponds directly with the value to the customer of the Company’s performance to date. +Reserves for Variable Consideration +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during fiscal years 2021 and 2020 related to the Company’s contract liabilities was nominal. +The Company’s contract balances are as follows: +(In millions) January 1, +2022 January 2, +2021 +Product returns reserve $ 16.6 $ 15.6 +Customer markdowns reserve 2.3 3.7 +Other sales incentives reserve 3.4 6.0 +Customer rebates liability 17.0 13.4 +Customer advances liability 6.8 8.2 +The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from initial estimates. If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. +Product Returns +Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and a reduction to trade receivables, net on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. +Customer Markdowns +Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. +Other Sales Incentives +The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. +Customer Rebates +The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. +Customer Advances +The Company recognizes a liability for amounts received from customers before revenue is recognized. Customer advances are recognized as a current liability on the consolidated balance sheets. +51 +7. INVENTORIES +The Company used the LIFO method to value inventories of $ 42.0 million and $ 35.6 million at January 1, 2022 and January 2, 2021, respectively. During fiscal years 2021 and 2020, changes in the LIFO reserve increased cost of goods sold by $ 0.5 million and decreased cost of goods sold $ 3.9 million, respectively. If the FIFO method had been used, inventories would have been $ 8.0 million and $ 7.5 million higher than reported at January 1, 2022 and January 2, 2021, respectively. +8. DEBT +Total debt consists of the following obligations: +(In millions) January 1, +2022 January 2, +2021 +Term Facility, due October 21, 2026 $ 200.0 $ 180.0 +Senior Notes, 5.000% interest, due September 1, 2026 — 250.0 +Senior Notes, 6.375% interest, due May 15, 2025 — 300.0 +Senior Notes, 4.000% interest, due August 15, 2029 550.0 — +Borrowings under revolving credit agreements 225.0 — +Unamortized deferred financing costs ( 8.2 ) ( 7.5 ) +Total debt $ 966.8 $ 722.5 +On October 21, 2021, the Company entered into a 2021 Replacement Facility Amendment and Reaffirmation Agreement (the “Amendment”) to its Credit Facility (as amended and restated, the "Credit Agreement"). The Amendment amended and restated the Credit Agreement to, among other things: (i) provide for a term loan A facility (the “Term Facility”) in an aggregate principal amount of $ 200.0 million, which replaced the existing term loan A; (ii) provide for an increased revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”) with total commitments of $ 1.0 billion, an increase of $ 200.0 million from the existing Revolving Facility; and (iii) set the LIBOR floor to 0.000 %, a decrease of 0.750% from the existing Senior Credit Facilities. The maturity date of the loans under the Senior Credit Facilities was extended to October 21, 2026. The Amendment provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. +The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026. The scheduled principal payments due over the next 12 months total $ 10.0 million as of January 1, 2022 and are recorded as current maturities of long-term debt on the consolidated balance sheets. +The Revolving Facility allows the Company to borrow up to an aggregate amount of $ 1.0 billion. The Revolving Facility also includes a $ 100.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company also had outstanding letters of credit under the Revolving Facility of $ 5.8 million and $ 6.1 million as of January 1, 2022 and January 2, 2021, respectively. These outstanding borrowings and letters of credit reduce the borrowing capacity under the Revolving Facility. +The interest rates applicable to amounts outstanding under Term Facility and to U.S. dollar denominated amounts outstanding under the Revolving Facility will be, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125 % to 1.000 %, or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125 % to 2.000 % (all capitalized terms used in this sentence are as defined in the Credit Agreement). At January 1, 2022, Term Facility had weighted-average interest rate of 1.35 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Senior Credit Facilities also contain certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Senior Credit Facilities require compliance with the following financial covenants: a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all +52 +capitalized terms used in this paragraph are as defined in the Credit Agreement). As of January 1, 2022, the Company was in compliance with all covenants and performance ratios under the Senior Credit Facilities. +On August 26, 2021, the Company issued $ 550.0 million aggregate principal debt amount of 4.000 % senior notes due on August 15, 2029. Related interest payments are due semi-annually beginning February 15, 2022. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. The proceeds from the senior notes were used to extinguish the Company’s $ 250.0 million senior notes due on September 1, 2026 and $ 300.0 million senior notes due on May 15, 2025. The Company incurred $ 34.0 million of debt extinguishment and other costs in connection with the senior notes extinguished, of which $ 28.4 million is related to redemption premiums and $ 5.6 million is related to write-off of capitalized financing fees. +The Company has a foreign revolving credit facility with aggregate available borrowing s of $ 4.0 million that are un committed and, therefore, each borrowing against the facility is subject to approval by the lender. As of January 1, 2022 and January 2, 2021, there were no borrowings against this credit facility. +The Company included in interest expense the amortization of deferred financing costs of $ 2.3 million, $ 2.7 million, and $ 1.6 million in fiscal years 2021, 2020 and 2019, respectively. +Annual maturities of debt for the fiscal years subsequent to January 1, 2022 are as follows: +(In millions) 2022 2023 2024 2025 2026 Thereafter +Annual maturities of debt +$ 235.0 $ 10.0 $ 10.0 $ 10.0 $ 160.0 $ 550.0 +9. PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) January 1, +2022 January 2, 2021 +Land $ 3.9 $ 3.9 +Buildings and leasehold improvements 122.2 119.6 +Furniture, fixtures and equipment 144.7 135.1 +Software 77.3 63.2 +Gross cost 348.1 321.8 +Less: accumulated depreciation 219.1 197.2 +Property, plant and equipment, net $ 129.0 $ 124.6 +Depreciation expense was $ 24.8 million, $ 25.7 million and $ 24.1 million for fiscal years 2021, 2020 and 2019, respectively. +10. LEASES +The following is a summary of the Company’s lease cost. +Fiscal Year +(In millions) 2021 2020 +Operating lease cost $ 34.5 $ 34.1 +Variable lease cost 12.3 12.3 +Short-term lease cost 1.3 1.2 +Sublease income ( 6.5 ) ( 4.8 ) +Total lease cost $ 41.6 $ 42.8 +The following is a summary of the Company’s supplemental cash flow information related to leases. +Fiscal Year +(In millions) 2021 2020 +Cash paid for operating lease liabilities $ 38.5 $ 28.6 +Operating lease assets obtained in exchange for lease liabilities 14.6 6.0 +53 +The weighted-average discount rate for operating leases as of January 1, 2022 is 5.0 %. The weighted-average remaining lease term for operating leases as of January 1, 2022 is 8.7 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to January 1, 2022 are as follows: +(In millions) Operating Leases +2022 $ 35.9 +2023 24.7 +2024 20.2 +2025 18.4 +2026 17.4 +Thereafter 76.6 +Total future payments 193.2 +Less: imputed interest 36.7 +Recognized lease liability $ 156.5 +The Company did not enter into any real estate leases with commencement dates subsequent to January 1, 2022. +11. DERIVATIVE FINANCIAL INSTRUMENTS +The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extended out to a maximum of 538 days and 538 days as of January 1, 2022 and January 2, 2021, respectively. When foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) within stockholders’ equity. During fiscal 2020, the Company reclassified $ 0.6 million to other income for foreign currency derivatives that were no longer deemed highly effective. +The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has an interest rate swap arrangement, which unless otherwise terminated, will mature on May 30, 2025 . This agreement, which exchanges floating rate interest payments for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts, has been designated as a cash flow hedge of the underlying debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap arrangement is recognized as interest expense. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swap and the variable rate borrowing, as well as its risk management objective and strategy for undertaking the hedge transactions. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the inception of the hedge, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. +The Company had a cross currency swap to minimize the impact of exchange rate fluctuations which matured on September 1, 2021 . Changes in fair value related to movements in the foreign currency exchange spot rate were recorded in accumulated other comprehensive income (loss), offsetting the currency translation adjustment related to the underlying net investment that was also recorded in accumulated other comprehensive income (loss). All other changes in fair value were recorded in interest expense. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) January 1, +2022 January 2, +2021 +Foreign exchange hedge contracts $ 296.7 $ 250.7 +Interest rate swap 311.3 — +Cross currency swap — 79.8 +54 +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) January 1, +2022 January 2, +2021 +Financial assets: +Foreign exchange hedge contracts $ 5.9 $ — +Financial liabilities: +Foreign exchange hedge contracts $ ( 1.0 ) $ ( 8.8 ) +Interest rate swap ( 0.1 ) — +Cross currency swap — ( 10.8 ) +12. STOCK-BASED COMPENSATION +The Company recognized stock-based compensation expense of $ 38.1 million, $ 28.9 million and $ 24.5 million and related income tax benefits of $ 7.5 million, $ 5.6 million and $ 4.8 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2021, 2020 and 2019, respectively. +As of January 1, 2022, the Company had 7,961,971 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment. These restrictions typically lapse over a three- to four-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement, death and disability, and upon a change in control of the Company. Awards issued to employees that meet the specified retirement age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +55 +Restricted Awards and Performance Awards +A summary of the unvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards Weighted- +Average +Grant Date +Fair Value Performance +Awards Weighted- +Average +Grant Date +Fair Value +Unvested at December 29, 2018 1,920,373 $ 24.38 1,631,018 $ 23.42 +Granted 554,092 34.73 370,830 37.10 +Vested ( 681,938 ) 24.63 ( 654,021 ) 17.46 +Forfeited ( 173,611 ) 28.47 ( 220,725 ) 19.74 +Unvested at December 28, 2019 1,618,916 $ 27.36 1,127,102 $ 31.94 +Granted 1,416,117 22.59 455,207 34.00 +Vested ( 1,122,811 ) 22.07 ( 451,334 ) 23.51 +Forfeited ( 268,205 ) 29.67 ( 125,653 ) 35.91 +Unvested at January 2, 2021 1,644,017 $ 26.39 1,005,322 $ 35.25 +Granted 654,898 34.64 630,996 38.02 +Vested ( 981,681 ) 22.78 ( 181,657 ) 35.03 +Forfeited ( 109,234 ) 32.75 ( 690,246 ) 35.71 +Unvested at January 1, 2022 1,208,000 $ 33.62 764,415 $ 35.69 +As of January 1, 2022, there was $ 19.8 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended January 1, 2022 was $ 34.8 million. As of January 2, 2021, there was $ 18.5 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Awards vested during the year ended January 2, 2021 was $ 35.0 million. As of December 28, 2019, there was $ 19.9 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Awards vested during the year ended December 28, 2019 was $ 23.7 million. +As of January 1, 2022, there was $ 16.1 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.4 years. The total fair value of Performance Awards vested during the year ended January 1, 2022 was $ 6.2 million. As of January 2, 2021, there was $ 1.4 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.4 years. The total fair value of Performance Aw ards vested during the year ended January 2, 2021 was $ 28.0 million. As of December 28, 2019, there was $ 4.5 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weig hted-average period of 1.1 years. The total fair value of Performance Awards vested during the year ended December 28, 2019 was $ 22.8 million. +56 +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $ 11.14 , $ 8.20 and $ 9.07 per share for fiscal years 2021, 2020 and 2019, respectively. +A summary of the stock option transactions is as follows: +Shares Under Option Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at December 29, 2018 4,702,002 $ 20.83 5.2 $ 54.5 +Granted 25,471 34.81 +Exercised ( 681,389 ) 17.87 +Canceled ( 12,977 ) 23.97 +Outstanding at December 28, 2019 4,033,107 $ 21.41 4.4 $ 49.8 +Granted 28,171 32.85 +Exercised ( 788,883 ) 18.39 +Canceled ( 12,990 ) 25.39 +Outstanding at January 2, 2021 3,259,405 $ 22.22 3.9 $ 29.7 +Granted 23,610 34.22 +Exercised ( 776,850 ) 22.11 +Canceled ( 17,353 ) 33.79 +Outstanding at January 1, 2022 2,488,812 $ 22.29 3.2 $ 16.7 +Unvested at January 1, 2022 ( 33,526 ) +Exercisable at January 1, 2022 2,455,286 $ 22.13 3.1 $ 16.7 +The total pretax intrinsic value of stock options exercised during fiscal years 2021, 2020 and 2019 was $ 11.4 million, $ 9.3 million and $ 10.7 million, respectively. As of January 1, 2022, there was $ 0.2 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 1.3 years. As of January 2, 2021 and December 28, 2019, there was $ 0.1 million and $ 0.2 million, respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 0.9 years and 1.4 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price o f the Company's stock was above the strike price ("in-the-money"), as of that date. The total number of in-the-money options exercisable as of January 1, 2022, based on the Company’s closing stock price of $ 28.81 per share, was 2,247,575 and the weighted-average exercise price was $ 21.70 per share . As of January 2, 2021, 3,096,685 outstanding options were exercisable and in-the-money, with a weighted-average exercise price of $ 21.66 per share. +13. RETIREMENT PLANS +The Company has two non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The second plan is closed to new participants and no longer accrue future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company following retirement, generally for the duration of their lives. The Company maintains life insurance policies with a cash surrender value of $ 45.6 million at January 1, 2022 and $ 44.0 million at January 2, 2021 recognized as a other assets on the consolidated balance sheets that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for discretionary Company contributions based on the amount of participant deferrals. The Company recognized expense for its +57 +contributions to the defined contribution plans of $ 5.2 million, $ 4.2 million and $ 5.2 million in fiscal years 2021, 2020 and 2019, respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.4 million, $ 1.3 million and $ 1.1 million in fiscal years 2021, 2020 and 2019, respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 1.0 million at January 1, 2022 and $ 1.0 million at January 2, 2021 and was recognized as a deferred compensation liability on the consolidated balance sheets. +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2021 and 2020: +Fiscal Year +(In millions) 2021 2020 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ 455.8 $ 401.0 +Service cost pertaining to benefits earned during the year +6.9 6.4 +Interest cost on projected benefit obligations +12.8 14.2 +Actuarial loss (gain) ( 26.6 ) 48.1 +Benefits paid to plan participants +( 14.6 ) ( 13.9 ) +Projected benefit obligations at end of the year +$ 434.3 $ 455.8 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ 305.0 $ 287.6 +Actual return on plan assets 30.1 28.8 +Company contributions - SERP +2.5 2.5 +Benefits paid to plan participants +( 14.6 ) ( 13.9 ) +Fair value of pension assets at end of the year +$ 323.0 $ 305.0 +Funded status +$ ( 111.3 ) $ ( 150.8 ) +Amounts recognized in the consolidated balance sheets: +Current liabilities +$ ( 3.9 ) $ ( 3.8 ) +Accrued pension liabilities ( 107.4 ) ( 147.0 ) +Net amount recognized +$ ( 111.3 ) $ ( 150.8 ) +Funded status of pension plans and SERP (supplemental): +Funded status of qualified defined benefit plans and SERP +$ ( 111.3 ) $ ( 150.8 ) +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations 38.0 36.6 +Net funded status of pension plans and SERP (supplemental) +$ ( 73.3 ) $ ( 114.2 ) +Unrecognized net actuarial loss recognized in accumulated other comprehensive income was $ 41.8 million and $ 92.8 million, and amounts net of tax were $ 33.2 million and $ 73.5 million, as of January 1, 2022 and January 2, 2021, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 416.1 million at January 1, 2022 and $ 430.2 million at January 2, 2021 . The decrease in benefit obligation for fiscal 2021 was the result of actuarial gains caused by changes to the discount rate. The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension expense during fiscal 2022 is $ 11.3 million. +58 +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) 2021 2020 2019 +Service cost pertaining to benefits earned during the year $ 6.9 $ 6.4 $ 5.5 +Interest cost on projected benefit obligations 12.8 14.2 15.2 +Expected return on pension assets ( 19.5 ) ( 18.7 ) ( 17.7 ) +Net amortization loss 13.8 6.6 2.6 +Net pension expense $ 14.0 $ 8.5 $ 5.6 +Less: SERP expense 5.7 5.2 5.4 +Qualified defined benefit pension plans expense $ 8.3 $ 3.3 $ 0.2 +The non-service cost components of net pension expense is recorded in the Other expense (income), net line item on the consolidated statements of operations and comprehensive income. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2021 2020 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +3.09 % 2.85 % +Rate of compensation increase - pension +4.18 % 4.18 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +2.85 % 3.60 % +Expected long-term rate of return on plan assets +6.75 % 6.75 % +Rate of compensation increase - pension +4.18 % 4.23 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five-year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and the service and interest cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of January 1, 2022 were 57 % in equity securities, 38 % in fixed income securities and 5 % in real estate investments. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +January 1, 2022 January 2, 2021 +(In millions) Total % of Total Total % of Total +Equity securities $ 181.3 +1 +56.1 % $ 173.3 +1 +56.8 % +Fixed income securities 118.9 +1 +36.8 % 112.7 +1 +37.0 % +Real estate investments 19.9 +1 +6.2 % 16.7 +1 +5.5 % +Other 2.9 +2 +0.9 % 2.3 +2 +0.7 % +Fair value of plan assets $ 323.0 100.0 % $ 305.0 100.0 % +1 In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +59 +2 In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 1 for additional information. +The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2022 and expects to make $ 3.9 million in contributions to the SERP in fiscal 2022. +Expected benefit payments for the fiscal years subsequent to January 1, 2022 are as follows: +(In millions) 2022 2023 2024 2025 2026 2027-2031 +Expected benefit payments $ 17.4 $ 18.0 $ 18.8 $ 19.5 $ 20.0 $ 106.7 +14. INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) 2021 2020 2019 +United States $ 22.7 $ ( 218.6 ) $ 79.3 +Foreign 57.6 34.5 66.6 +Earnings (loss) before income taxes $ 80.3 $ ( 184.1 ) $ 145.9 +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) 2021 2020 2019 +Current expense: +Federal $ 14.6 $ 0.7 $ 10.6 +State 2.5 0.6 0.5 +Foreign 15.0 8.3 12.5 +Deferred expense (benefit): +Federal ( 17.1 ) ( 51.6 ) ( 5.8 ) +State ( 1.8 ) ( 4.4 ) ( 2.0 ) +Foreign 0.1 0.9 1.2 +Income tax expense (benefit) $ 13.3 $ ( 45.5 ) $ 17.0 +60 +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: +Fiscal Year +(In millions) 2021 2020 2019 +Income taxes at U.S. statutory rate of 21% $ 16.9 $ ( 38.7 ) $ 30.6 +State income taxes, net of federal income tax ( 1.1 ) ( 8.1 ) 0.5 +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong ( 7.2 ) ( 3.3 ) ( 8.5 ) +Other 3.1 1.2 2.8 +Adjustments for uncertain tax positions ( 1.3 ) ( 1.4 ) ( 1.0 ) +Change in valuation allowance 2.2 4.7 ( 0.2 ) +Change in state tax rates — — ( 1.5 ) +Global Intangible Low Tax Income tax 3.2 2.5 2.1 +Foreign Derived Intangible Income tax benefit ( 3.7 ) ( 1.6 ) ( 4.4 ) +Non-deductible executive compensation 5.2 1.6 2.0 +Permanent adjustments related to employee share based compensation ( 3.7 ) ( 4.6 ) ( 5.1 ) +Deferred tax on future cash dividends ( 0.9 ) 1.0 0.6 +Income tax audit adjustments 2.5 — — +Deferred adjustment for income tax audit ( 1.2 ) — — +Other Permanent adjustments and non-deductible expenses ( 0.3 ) 1.0 ( 0.6 ) +Other ( 0.4 ) 0.2 ( 0.3 ) +Income tax expense (benefit) $ 13.3 $ ( 45.5 ) $ 17.0 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) January 1, +2022 January 2, +2021 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances $ 5.2 $ 3.5 +Deferred compensation accruals 7.2 4.5 +Accrued pension expense 25.7 33.4 +Stock-based compensation 8.2 9.1 +Net operating loss and foreign tax credit carryforwards 18.5 21.0 +Book over tax depreciation and amortization 0.4 0.4 +Tenant lease expenses 4.0 4.4 +Environmental reserve 33.7 24.9 +Other 9.5 9.1 +Total gross deferred income tax assets 112.4 110.3 +Less valuation allowance ( 24.6 ) ( 22.3 ) +Net deferred income tax assets 87.8 88.0 +Deferred income tax liabilities: +Intangible assets ( 190.6 ) ( 105.3 ) +Tax over book depreciation and amortization ( 9.3 ) ( 10.7 ) +Other ( 5.0 ) ( 4.3 ) +Total deferred income tax liabilities ( 204.9 ) ( 120.3 ) +Net deferred income tax liabilities $ ( 117.1 ) $ ( 32.3 ) +The valuation allowance for deferred income tax assets as of January 1, 2022 and January 2, 2021 was $ 24.6 million and $ 22.3 million, respectively. The net increase in the total valuation allowance during fiscal 2021 was $2.3 million. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit +61 +carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation allowance results in an increase against the state deferred tax assets of $ 1.0 million, an increase related to state net operating loss carryforward of $ 0.5 million, and a net increase relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 0.8 million. +At January 1, 2022, the Company had foreign net operating loss carryforwards of $ 30.4 million, which have expirations ranging from 2022 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. federal net operating loss carryforwards, state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 15.7 million, $ 234.4 million and $ 32.5 million respectively, which have expirations ranging from 2022 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.9 million, which are available for an unlimited carryforward period to offset future foreign taxes. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) 2021 2020 +Unrecognized tax benefits at beginning of the year $ 5.5 $ 6.9 +Increases related to current year tax positions 7.8 2.6 +Decreases related to prior year positions ( 0.9 ) ( 1.3 ) +Decreases relating to settlements with taxing authorities ( 1.4 ) ( 2.4 ) +Decrease due to lapse of statute ( 0.1 ) ( 0.3 ) +Unrecognized tax benefits at end of the year $ 10.9 $ 5.5 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 10.1 million and $ 5.0 million as of January 1, 2022 and January 2, 2021, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 0.6 million and $ 0.6 million as of January 1, 2022 and January 2, 2021, respectively. +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. +The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 1.4 million and $ 2.2 million for fiscal years 2021 and 2020, respectively. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 199.1 million at January 1, 2022. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +62 +15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) +Accumulated other comprehensive income represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +The change in accumulated other comprehensive income (loss) during fiscal years 2021 and 2020 is as follows: +(In millions) Foreign +currency +translation Derivatives Pension Total +Balance at December 28, 2019 $ ( 47.6 ) $ ( 5.8 ) $ ( 48.7 ) $ ( 102.1 ) +Other comprehensive income (loss) before reclassifications (1) +10.8 ( 17.6 ) ( 30.0 ) ( 36.8 ) +Amounts reclassified from accumulated other comprehensive income (loss) — 3.5 +(2) +6.6 +(3) +10.1 +Income tax (expense) benefit — ( 0.4 ) ( 1.4 ) ( 1.8 ) +Net reclassifications +— 3.1 5.2 8.3 +Net current-period other comprehensive income (loss) (1) +10.8 ( 14.5 ) ( 24.8 ) ( 28.5 ) +Balance at January 2, 2021 $ ( 36.8 ) $ ( 20.3 ) $ ( 73.5 ) $ ( 130.6 ) +Other comprehensive income (loss) before reclassifications (1) +( 20.0 ) 7.7 29.5 17.2 +Amounts reclassified from accumulated other comprehensive income (loss) — 5.1 +(2) +13.8 +(3) +18.9 +Income tax (expense) benefit — ( 1.4 ) ( 3.0 ) ( 4.4 ) +Net reclassifications +— 3.7 10.8 14.5 +Net current-period other comprehensive income (loss) (1) +( 20.0 ) 11.4 40.3 31.7 +Balance at January 1, 2022 $ ( 56.8 ) $ ( 8.9 ) $ ( 33.2 ) $ ( 98.9 ) +(1) Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) Amounts related to foreign currency derivatives deemed to be highly effective are included in cost of goods sold. Amounts related to foreign currency derivatives that are no longer deemed to be highly effective are included in other income. Amounts related to interest rate swaps and the cross currency swap are included in interest expense. +(3) Amounts reclassified are included in the computation of net pension expense. +16. FAIR VALUE MEASUREMENTS +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) January 1, 2022 January 2, 2021 +Financial assets: +Derivatives $ 5.9 $ — +Financial liabilities: +Derivatives $ ( 1.1 ) $ ( 19.6 ) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. The fair value of the cross-currency swap is determined using the current forward rates and changes in the spot rate. +Nonrecurring Fair Value Measurements +Indefinite-lived intangible assets are tested annually, or if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3). The Company recorded an impairment charge +63 +of $ 222.2 million on the Sperry ® indefinite-lived trade name in fiscal 2020. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sperry ® trade name impairment. +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt are as follows: +(In millions) January 1, 2022 January 2, 2021 +Carrying value $ 966.8 $ 722.5 +Fair value 960.6 765.4 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +17. LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M Company changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets and Scotchgard™. +In May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion (“ppt”) combined for PFOA and PFOS. In January 2018, the Michigan Department of Environmental Quality (“MDEQ”, now known as the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”)) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. On August 3, 2020, Michigan changed the standards for PFOA and PFOS in drinking water to 8 and 16 ppt, respectively, and set standards for four other PFAS substances. +Civil and Regulatory Actions of EGLE and EPA +On January 10, 2018, EGLE filed a civil action against the Company in the U.S. District Court for the Western District of Michigan under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”) and Parts 201 and 31 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has resulted in releases of PFAS at levels exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action"). Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, NREPA, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and common law nuisance. +On February 3, 2020, the parties entered into a consent decree resolving the EGLE Action, which was approved by U.S. District Judge Janet T. Neff on February 19, 2020 (the “Consent Decree”). Under the Consent Decree, the Company agreed to pay for an extension of Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million. The Company also agreed to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to assess the presence of PFAS in area groundwater. The Company’s activities under the Consent Decree are not materially impacted by the drinking water standards that became effective on August 3, 2020. +On December 19, 2018, the Company filed a third-party complaint against 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the EGLE Action ("the 3M Action"). On June 20, 2019, the 3M Company filed a counterclaim against the Company in response to the 3M Action, seeking, among other things, contractual and common law indemnity and contribution under CERCLA and Part 201 of NREPA. On February 20, 2020, the +64 +Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company paid the Company a lump sum amount of $ 55.0 million during the first quarter of 2020. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a) with an effective date of February 1, 2018. The Order pertained to specified removal actions at the Company's Tannery and House Street sites, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites. On October 28, 2019, the EPA and the Company entered into an Administrative Settlement and Order on Consent (“AOC”) that supersedes the Order and addresses the agreed-upon removal actions outlined in the Order. The Company has completed on-site activities required by the AOC, and is awaiting the final review and determination from the EPA. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual and Class Action Litigation +Beginning in late 2017, individual lawsuits and three putative class action lawsuits were filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. The three putative class action lawsuits were subsequently refiled in the U.S. District Court for the Western District of Michigan as a single consolidated putative class action lawsuit. 3M Company has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit. In addition, the current owner of a former landfill and gravel mining operation sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (this suit collectively with the individual lawsuits and putative class action, the “Litigation Matters”). +On September 27, 2021, the Company and 3M Company entered into a non-binding term sheet outlining proposed settlement terms with the law firm representing certain of the plaintiffs in the individual lawsuits included in the Litigation Matters, and, on January 11, 2022, the parties entered into the agreement related to this proposed settlement (the “Master Settlement Agreement”). The plaintiffs’ law firm has until March 11, 2022 to obtain each of its individual clients’ agreement to participate in the proposed settlement under the Master Settlement Agreement and provide a related release. After the March 11, 2022 deadline, any party to the Master Settlement Agreement may, for a limited time, elect to opt out of the Master Settlement Agreement if: (a) too many individual plaintiffs do not sign releases and participate in the proposed settlement under the Master Settlement Agreement; or (b) any plaintiff asserting personal injury claims fails to participate in the proposed settlement under the Master Settlement Agreement. In the event any party opts out of the Master Settlement Agreement, it will be void. If the Master Settlement Agreement is voided, the Company intends to continue vigorously defending the individual lawsuits and other Litigation Matters. +On December 9, 2021, the Company and 3M Company reached a settlement in principle to resolve certain of the other remaining individual lawsuits included in the Litigation Matters. Upon completion of these settlements, only one private individual action will remain pending in Michigan state court. In addition, the parties to the putative class action have engaged in mediation. +Assessing potential liability with respect to the Litigation Matters at this time is difficult. Other than the individual lawsuits subject to the settlements described above, the Litigation Matters are in various stages of discovery and related motions. In addition, there is minimal direct and relevant precedent for these types of claims related to PFAS, and the science regarding the human health effects of PFAS exposure in the environment remains inconclusive and inconsistent, thereby creating additional uncertainties. For certain of the Litigation Matters described above, the Company has recorded an accrual in the amount of $ 50.7 million since January 2, 2021 and made related payments of $ 0.6 million. +In December 2018, the Company filed a lawsuit against certain of its historic liability insurers, seeking to compel them to provide a defense against the Litigation Matters on the Company's behalf and coverage for remediation efforts undertaken by, and indemnity provided by, the Company. The Company recognized certain recoveries from legacy insurance policies in 2021 and 2020, and continues pursing additional recoveries through the lawsuit. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment, intellectual property, and other environmental matters. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available to the Company and reserves for liabilities that the Company has recorded, along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +65 +Environmental Liabilities +The following is a summary of the activity with respect to the environmental remediation reserve established by the Company: +Fiscal Year +(In millions) 2021 2020 +Remediation liability at beginning of the year +$ 101.8 $ 124.4 +Amounts paid +( 16.1 ) ( 22.6 ) +Remediation liability at the end of the year +$ 85.7 $ 101.8 +The reserve balance as of January 1, 2022 includes $ 24.5 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 61.2 million expected to be paid over the course of up to 25 years, recorded in other liabilities. +The Company's remediation activity at the Tannery property, House Street site and other relevant disposal sites is ongoing. Although the Consent Decree has made near-term costs more clear, it is difficult to estimate the long-term cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to January 1, 2022 are as follows: +(In millions) 2022 2023 2024 2025 2026 Thereafter +Minimum royalties $ 1.8 $ — $ — $ — $ — $ — +Minimum advertising 3.8 3.9 4.1 — — — +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.3 million, $ 1.9 million and $ 2.3 million for fiscal years 2021, 2020 and 2019, respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 6.5 million, $ 2.5 million and $ 3.6 million for fiscal years 2021, 2020 and 2019, respectively. +18. BUSINESS SEGMENTS +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Sweaty Betty ® activewear business, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate expenses, such as +66 +corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s consumer-direct businesses. The Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +Company management uses various financial measures to evaluate the performance of the reportable segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) 2021 2020 2019 +Revenue: +Wolverine Michigan Group $ 1,298.9 $ 1,051.0 $ 1,299.7 +Wolverine Boston Group 935.8 696.0 910.9 +Other 180.2 44.1 63.1 +Total $ 2,414.9 $ 1,791.1 $ 2,273.7 +Operating profit (loss): +Wolverine Michigan Group $ 245.3 $ 179.9 $ 244.8 +Wolverine Boston Group 149.3 88.1 153.8 +Other 14.3 1.6 2.9 +Corporate ( 253.2 ) ( 406.7 ) ( 230.5 ) +Total $ 155.7 $ ( 137.1 ) $ 171.0 +Depreciation and amortization expense: +Wolverine Michigan Group $ 2.2 $ 2.7 $ 2.4 +Wolverine Boston Group 2.6 3.4 3.3 +Other 4.8 2.0 2.4 +Corporate 23.6 24.7 24.6 +Total $ 33.2 $ 32.8 $ 32.7 +Capital expenditures: +Wolverine Michigan Group $ 0.8 $ 0.8 $ 2.2 +Wolverine Boston Group 0.4 2.3 5.7 +Other 6.0 0.9 2.2 +Corporate 10.4 6.3 24.3 +Total $ 17.6 $ 10.3 $ 34.4 +(In millions) January 1, +2022 January 2, +2021 +Total assets: +Wolverine Michigan Group $ 651.9 $ 626.9 +Wolverine Boston Group 1,123.6 1,077.8 +Other 606.2 31.4 +Corporate 204.7 401.3 +Total $ 2,586.4 $ 2,137.4 +Goodwill: +Wolverine Michigan Group $ 145.1 $ 145.4 +Wolverine Boston Group 296.2 297.0 +Other 115.3 — +Total $ 556.6 $ 442.4 +67 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) 2021 2020 2019 +United States $ 1,573.9 $ 1,234.2 $ 1,507.9 +Foreign: +Europe, Middle East and Africa 460.3 279.8 343.1 +Asia Pacific 161.6 120.3 193.7 +Canada 116.9 88.9 117.9 +Latin America 102.2 67.9 111.1 +Total from foreign territories 841.0 556.9 765.8 +Total revenue $ 2,414.9 $ 1,791.1 $ 2,273.7 +The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment and lease right-of-use assets, is as follows: +(In millions) January 1, +2022 January 2, +2021 December 28, +2019 +United States $ 205.8 $ 222.2 $ 247.2 +Foreign countries 61.4 44.9 54.6 +Total $ 267.2 $ 267.1 $ 301.8 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2021, the Company sourced 100 % of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +19. BUSINESS ACQUISITIONS +Sweaty Betty ® +On July 31, 2021, the Company entered into a definitive agreement to acquire 100 % of the outstanding shares of Lady of Leisure InvestCo Limited. The acquisition was completed on August 2, 2021 for $ 417.4 million, which is net of acquired cash of $ 7.4 million. The Acquired Company owns the Sweaty Betty ® brand and activewear business. The acquisition was funded with cash on hand and borrowings under the Company’s Revolving Facility. +Sweaty Betty ® is a premium women’s activewear brand that distributes a wide array of innovative on-trend tops, bottoms, swimwear, outerwear and accessories around the world, mainly through direct-to-consumer channels. The Sweaty Betty ® acquisition is part of the Company’s strategic shift over the last several years from a traditional footwear wholesaler to a consumer-obsessed, digital-focused growth company. The acquisition also aligns with the Company’s strategic growth plan to focus on expanding the Company’s digital and international footprint, and building the brand portfolio beyond footwear. +Sweaty Betty ® contributed net revenue of $ 117.4 million and net earnings of $ 9.7 million to the Company for the period from the acquisition date to January 1, 2022. The Sweaty Betty ® operating results are included in the Other category for segment reporting purposes. +The Company recognized acquisition-related transaction costs of $ 7.5 million for 2021, in the selling, general and administrative expenses line item in the Consolidated Statement of Operations. These costs represent investment banking fees, legal and professional fees, transaction fees, and consulting fees associated with the acquisition. +The Company accounted for the acquisition following FASB ASC Topic 805, Business Combinations , and the related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The aggregate purchase price was allocated to the major categories of assets acquired and liabilities assumed based upon their respective fair values at the acquisition date using primarily Level 2 and Level 3 inputs. The Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates. The Sweaty Betty ® trademark, which is estimated to have an indefinite life, has been valued at $ 346.4 million using the multi-period excess earnings method. The multi-period excess earnings method requires the use of +68 +significant estimates and assumptions, including but not limited to, future revenues, growth rates, EBITDA margin, tax rates and a discount rate. +The purchase price allocation is preliminary and based upon valuation information available to determine the fair value of certain assets and liabilities, including goodwill, and is subject to change, primarily for income tax matters and final adjustments to net working capital as additional information is obtained about the facts and circumstances that existed at the valuation date. The Company expects to finalize the fair values of the assets acquired and liabilities assumed over the one-year measurement period. +The following table summarizes the preliminary purchase price allocation to the assets acquired and liabilities assumed at the acquisition date: +(In millions) Fair Value +Accounts receivable $ 3.6 +Inventories 48.4 +Prepaid expenses and other current assets 5.3 +Property, plant and equipment 10.0 +Lease right-of-use assets 7.0 +Goodwill 118.9 +Intangibles 355.0 +Other assets 0.6 +Total assets acquired 548.8 +Accounts payable 13.1 +Accrued salaries and wages 6.0 +Other accrued liabilities 14.3 +Lease liabilities 7.0 +Deferred income taxes 91.0 +Total liabilities assumed 131.4 +Net assets acquired $ 417.4 +Goodwill is the result of expected synergies and the Company’s ability to grow the Sweaty Betty ® brand, as well the acquired assembled workforce. All of the goodwill is presented within the Other category for segment reporting purposes and within the Sweaty Betty ® reporting unit and will not be deductible for income tax purposes. +Intangible assets acquired in the acquisition were valued as follows: +(In millions) Intangible Asset Useful life +Trade name and trademark $ 346.4 Indefinite +Customer relationship 7.2 18 years +Backlog 1.0 5 months +Customer list 0.4 3 years +Total intangible assets acquired $ 355.0 +The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of the Sweaty Betty ® brand and activewear business occurred at the beginning of fiscal 2020. The pro forma information is not necessarily indicative of the results that would have actually been obtained if the acquisition had occurred at such date or that may be attained in the future. These pro forma amounts have been calculated after including the historical Sweaty Betty ® operating results in the Company’s consolidated results and reflecting the following adjustments: fair value adjustments for intangible assets and inventory acquired, timing adjustment to recognize acquisition related costs incurred in 2021 and in 2020, and adjustments reflecting historical interest expense. The adjustments have been applied with related tax effects. +69 +Fiscal Year +(In millions) 2021 2020 +Net revenue $ 2,552.4 $ 1,954.7 +Net earnings attributable to Wolverine World Wide, Inc. 83.9 ( 144.9 ) +Sportlab +On April 30, 2019, the Company acquired assets and assumed liabilities from Sportlab S.R.L. (“Sportlab”), the distributor of Saucony ® footwear in Italy. Total purchase consideration of $ 25.2 million includes cash paid, extinguishment of Sportlab’s accounts payable balance that was due to the Company at the time of acquisition and contingent consideration. The contingent consideration was based on sales activity from the date of the acquisition through the end of fiscal 2019 and was paid in the first quarter of fiscal 2020. The detailed amounts of each component of the purchase consideration are as follows: +(In millions) Purchase Consideration +Cash paid $ 15.1 +Extinguishment of Sportlab’s accounts payable balance 4.6 +Contingent consideration 5.5 +Total purchase consideration $ 25.2 +The Company accounted for the acquisition under the provisions of FASB ASC Topic 805, Business Combinations . The related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The operating results for the acquired Saucony ® distribution business are included in the Company’s consolidated results of operations beginning April 30, 2019, and are included in the Wolverine Boston Group reporting group for segment reporting purposes. +The final allocation of the purchase price as of December 28, 2019 was: +(In millions) Final Valuation +Accounts receivable $ 1.8 +Inventories 6.2 +Goodwill 12.0 +Amortizable intangibles 12.9 +Total assets acquired 32.9 +Deferred income taxes 3.2 +Other liabilities 4.5 +Total liabilities assumed 7.7 +Net assets acquired $ 25.2 +The excess of the purchase price over the fair value of the net assets acquired, amounting to $ 12.0 million, was recorded as goodwill in the consolidated balance sheet and was assigned to the Wolverine Boston Group reportable segment. The goodwill that was recognized is attributable to the efficiencies to be gained by integrating operations with the Saucony ® distribution business purchased from Sportlab. Other intangible assets acquired include order backlog, valued at $ 1.7 million, and customer relationship assets, valued at $ 11.2 million, which had estimated useful lives at the acquisition date of 7 months and 14 years, respectively. +70 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of January 1, 2022 and January 2, 2021, the related consolidated statements of operations, comprehensive income (loss) , stockholders' equity and cash flows for each of the three years in the period ended January 1, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 1, 2022 and January 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2022, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2022 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. +Valuation of indefinite-lived intangibles +Description of the Matter +At January 1, 2022, the Company’s indefinite-lived intangible assets were $718.1 million, which included $296.0 million for the Sperry trade name. As discussed in Notes 1 and 4 of the consolidated financial statements, indefinite-lived intangibles are tested for impairment at least annually. +Auditing management’s annual impairment test for the Sperry trade name was complex due to the significant estimation uncertainty required in determining the fair value of the Sperry trade name indefinite-lived intangible asset. The significant assumptions used to estimate the fair value of the Sperry trade name included the forecasted revenue growth, EBITDA margin, and discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. Changes in these assumptions could have a significant impact on the fair value of the Sperry trade name, the amount of any impairment charge, or both. +71 +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of Company’s controls over the Sperry trade name impairment review process. For example, we tested controls that address the risk of material misstatement relating to the valuation of the trade name, including management’s review of the significant assumptions described above and the completeness and accuracy of the data used to develop such estimates. +To test the estimated fair value of the Sperry trade name, our audit procedures included, among others, assessing the appropriateness of the valuation model used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the financial projections to current industry and economic trends and the historical accuracy of management’s estimates. We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate. +Valuation of Sweaty Betty trade name and trademark intangible asset in the acquisition of Lady of Leisure InvestCo Limited +Description of the Matter +As discussed in Note 19 to the consolidated financial statements, during the year ended January 1, 2022, the Company completed the acquisition of Lady of Leisure InvestCo Limited (which owns the Sweaty Betty brand and activewear business, referred to herein as “Sweaty Betty”) for a total purchase price of approximately $417.4 million. The acquisition was accounted for as a business combination. The consideration paid in the acquisition must be allocated to the acquired assets and liabilities assumed generally based on their fair value with the excess of the purchase price over those fair values allocated to goodwill. +Auditing the Company’s accounting for its acquisition of Sweaty Betty was complex due to the significant estimation uncertainty involved in estimating the fair value of the trade name and trademark intangible asset. The total fair value ascribed to the trade name and trademark intangible amounted to $346.4 million. The Company used the multi-period excess earnings method to value the trade name and trademark. The significant assumptions used to estimate the fair value of trade name and trademark included the forecasted revenue growth, EBITDA margin and discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its accounting for the acquisition of Sweaty Betty. For example, we tested controls that address the risks of material misstatement relating to the valuation of the trade name and trademark intangible asset, including management’s review of the methods and significant assumptions used to develop such estimates. +To test the estimated fair value of the acquired trade name and trademark intangible asset, our audit procedures included, among others, assessing the appropriateness of the valuation methodologies used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the financial projections to current industry and economic trends, the historic financial performance of the acquired business, and forecasted performance of guideline public companies. We also performed sensitivity analyses to evaluate the changes in the fair value of the intangible assets that would result from changes in the significant assumptions. We involved our valuation specialist to assist in evaluating the methodologies used to estimate the fair value of the trade name and trademark intangible asset and to test certain significant assumptions, including the discount rate. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 24, 2022 +72 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries’ internal control over financial reporting as of January 1, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 1, 2022, based on the COSO criteria. +As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Lady of Leisure InvestCo Limited, which is included in the 2022 consolidated financial statements of the Company and constituted 4% of total assets as of January 1, 2022 and 5% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Lady of Leisure InvestCo Limited. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 1, 2022 and January 2, 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended January 1, 2022, and the related notes and financial statement schedule and our report dated February 24, 2022 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 24, 2022 +73 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of January 1, 2022, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 1, 2022. The Company excluded Lady of Leisure InvestCo Limited, acquired on August 2, 2021, from the evaluation of internal control over financial reporting as of January 1, 2022. The total assets of Lady of Leisure InvestCo Limited that are subject to the Company's evaluation, represent approximately 4% of consolidated assets at January 1, 2022. The total revenues of Lady of Leisure InvestCo Limited represent approximately 5% of the consolidated revenues for the year ended January 1, 2022. +The effectiveness of the Company’s internal control over financial reporting as of January 1, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended January 1, 2022 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company has excluded Lady of Leisure InvestCo Limited from the assessment of internal control over financial reporting as of January 1, 2022 because it was acquired by the Company in a business combination during the year ended January 1, 2022. +Item 9B. Other Information +None. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine World Wide, Inc. expected to be held on May 4, 2022 in sections "Election of Directors" and "Corporate Governance". The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct is posted on our website located at http://www.wolverineworldwide.com/investor-relations/corporate-governance/. We intend to disclose future amendments to certain provisions of the Code of Business Conduct, and waivers of the Code of Business Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver. +74 +Item 11. Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Compensation Discussion and Analysis". +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Securities Ownership in Officers and Directors and Certain Beneficial Owners".. +Equity Compensation Plan Information +The following table provides information about the Company’s equity compensation plans as of January 1, 2022: +Plan Category (1) +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights +(a) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights +(b) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans Excluding Securities Reflected in Column (a)) +(c) +Equity compensation plans approved by security holders +2,488,812 +(2), (3) +$ 22.29 8,071,611 +(4) +Equity compensation plans not approved by security holders +— — — +Total 2,488,812 $ 22.29 8,071,611 +(1) Each plan for which aggregated information is provided contains customary anti-dilution provisions that are applicable in the event of a stock split, stock dividend or certain other changes in the Company’s capitalization. +(2) Includes: (i) 2,219,618 stock options awarded to employees under the Amended and Restated Stock Incentive Plan of 1999, the Amended and Restated Stock Incentive Plan of 2001, the Amended and Restated Stock Incentive Plan of 2003, the Amended and Restated Stock Incentive Plan of 2005, the Stock Incentive Plan of 2010, the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and restated; and (ii) and 269,194 stock options awarded to non-employee directors under the Amended and Restated Stock Incentive Plan of 2005, the Stock Incentive Plan of 2010, the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and rested. Column (a) does not include stock units credited to outside directors’ fee accounts or retirement accounts under the Outside Directors’ Deferred Compensation Plan. Stock units do not have an exercise price. Each stock unit credited to a director’s fee account and retirement account under the Outside Directors’ Deferred Compensation Plan will be converted into one share of common stock upon distribution. Column (a) also does not include shares of restricted or unrestricted common stock previously issued under the Company’s equity compensation plans. +(3) Of this amount, 33,526 options were not exercisable as of January 1, 2022 due to vesting restrictions. +(4) Comprised of: (i) 109,640 shares available for issuance under the Outside Directors’ Deferred Compensation Plan upon the retirement of the current directors or upon a change in control; and (ii) 7,961,971 shares issuable under the Stock Incentive Plan of 2016, as amended and restated. +The Outside Directors’ Deferred Compensation Plan is a supplemental, unfunded, nonqualified deferred compensation plan for non-employee directors. Beginning in 2006, the Company began paying an annual equity retainer to non-management directors in the form of a contribution under the Outside Directors’ Deferred Compensation Plan. Non-management directors may also voluntarily elect to receive, in lieu of some or all directors’ fees, a number of stock units equal to the amount of the deferred directors’ fees divided by the fair market value of the Company’s common stock on the date of payment. These stock units are increased by a dividend equivalent based on dividends paid by the Company and the amount of stock units credited to the participating director’s fee account and retirement account. Upon distribution, the participating directors receive a number of shares of the Company’s common stock equal to the number of stock units to be distributed at that time. Distribution is triggered by termination of service as a director or by a change in control of the Company and can occur in a lump sum, in installments or on another deferred basis. A total of 346,315 shares have been issued to a trust to satisfy the Company’s obligations when distribution is triggered and are included in shares the Company reports as issued and outstanding. +The Stock Incentive Plan of 2016, as amended and restated, is an equity-based incentive plan for officers, key employees, and directors. Such plan authorizes awards of stock options, restricted common stock, common stock, restricted stock units and/or stock appreciation rights. The Stock Incentive Plan of 2016, as amended and restated, provides that each share of restricted or unrestricted common stock and each restricted stock unit issued under the plan is counted as 2.6 shares against the total number of shares authorized for issuance under the plan. The number of securities listed as remaining available in column (c) of the table assumes only stock options will be issued under the plan in the future; each stock option counts as only one share against the total number of shares authorized for issuance under the plan. Actual shares available under the plan will be less to the +75 +extent that the Company awards restricted common stock, unrestricted common stock or restricted stock units under the plan. The numbers provided in this footnote and in column (c) will increase to the extent that options relating to the number of shares listed in column (a) of the table or other outstanding awards (e.g., shares of restricted or unrestricted stock, restricted stock units or stock appreciation rights) previously issued under the plan are canceled, surrendered, modified, exchanged for substitutes, expire or terminate prior to exercise or vesting because the number of shares underlying any such awards will again become available for issuance under the plan under which the award was granted. +Of the total number of shares available under column (c), the number of shares with respect to the following plans may be issued other than upon the exercise of an option, warrant or right outstanding as of January 1, 2022: +• Outside Directors’ Deferred Compensation Plan: 109,640 +• Stock Incentive Plan of 2016, as amended and restated: 3,062,297 +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". +Item 14. Principal Accountant Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Independent Registered Public Accounting Firm". +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a) The following documents are filed as part of this report: +(1) Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• Consolidated Statements of Operations for the Fiscal Years Ended January 1, 2022, January 2, 2021 and December 28, 2019. +• Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended January 1, 2022, January 2, 2021 and December 28, 2019. +• Consolidated Balance Sheets as of January 1, 2022 and January 2, 2021. +• Consolidated Statements of Cash Flows for the Fiscal Years Ended January 1, 2022, January 2, 2021 and December 28, 2019. +• Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended January 1, 2022, January 2, 2021 and December 28, 2019. +• Notes to the Consolidated Financial Statements. +• Reports of Independent Registered Public Accounting Firm. +(2) Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +76 +Exhibit Number Document +2.1 +Share Purchase Agreement, dated as of July 31, 2021 by and among the Institutional Sellers, the Management Sellers, and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the period ended October 2, 2021. +2.2 +Management Warranty Deed, dated as of July 31, 2021, by and among the Warrantors and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the period ended October 2, 2021. +3.1 +Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 7 , 20 21 . +4.1 +Description of the Registrant's Securities Registered Pursuant To Section 12 of The Securities Exchange Act of 1934. Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019. +4.2 +Senior Notes Indenture, dated August 26, 2021, among Wolverine World Wide, Inc., the guarantors named therein, and The Huntington National Bank. Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 26, 2021. +4.3 +Form of 4.000% Senior Notes due 2029. Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on August 26, 2021. +10.1 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.2 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.3 +Wolverine World Wide, Inc. Deferred Compensation Plan, Amended and Restated.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.4 +First Amendment to the Wolverine World Wide, Inc. Deferred Compensation Plan, dated as of December 29, 2020.* Incorporated by reference to Exhibit 10. 35 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.5 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.6 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.7 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.8 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10. 8 . +10.9 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10. 9 . +10.10 +Executive Severance Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.11 +Amendment, dated as of March 25, 2021, to the Executive Severance Agreement between Brendan Hoffman and the Company, dated as of September 8, 2020.* Incorporated by reference to Exhibit 10.1 to the Comp any's Current Report on Form 8-K filed on March 2 6 , 2021. +10.12 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.13 +Indemnification Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.14 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +77 +Exhibit Number Document +10.15 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.16 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10. 1 6 . +10.17 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.18 +Sixth Amendment to the Wolverine Employees' Pension Plan.* Incorporated by reference to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 29, 2018. +10.19 +First Amendment to the Wolverine Employees' Pension Plan, dated as of December 2, 2020.* Incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.20 +Second Amendment to the Wolverine Employees' Pension Plan, dated as of December 9, 2021.* +10.21 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.22 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.23 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.24 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016, as amended and restated.* Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on March 2 6 , 20 21 . +10.25 +2018 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.26 +2019 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2019. +10.27 +2020 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 2020. +10.28 +2020 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 22, 2020. +10.29 +2021 F orm of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.30 +Form of Performance Stock Unit Agreement (2021 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.31 +Form of Performance Stock Unit Agreement (2021 - 2022 performance period).* Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.32 +Form of Performance Stock Unit Agreement (2021 - 2023 performance period).* Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.33 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.34 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +78 +Exhibit Number Document +10.35 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.36 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.37 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.38 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.39 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +10.40 +2018 Replacement Facility Amendment, dated as of December 6, 2018 among the Company, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, Wells Fargo Bank, National Association, Bank of America, N.A. and HSBC Bank USA, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2018. +10.41 +Second Amendment, dated as of May 5, 2020, to the Amended and Restated Credit Agreement, dated as of December 6, 2018, among Wolverine World Wide, Inc., as parent borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, the other borrowers party thereto, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 6, 2020. +10.42 +2021 Replacement Facility Amendment and Reaffirmation Agreement, dated as of October 21, 2021, among Wolverine World Wide, Inc., as parent borrower, the Additional Borrow ers party thereto, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on October 2 5 , 2021. +10.43 +Receivables Purchase Agreement dated as of December 22, 2014, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.44 +Amendment to the Receivables Purchase Agreement, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and HSBC Bank USA, N.A. as purchaser, dated January 5, 2018. Incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.45 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.46 +Wolverine World Wide, Inc. Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2019. +10.47 +Consent Decree by and among Wolverine World Wide, Inc., the State of Michigan, Plainfield Charter Township, and Algoma Township. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 7, 2020. +10.48 +Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 26, 2020. +79 +Exhibit Number Document +10.49 +Amended Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 23, 2021. +21 +Subsidiaries of Registrant. +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101 The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated Statements of Comprehensive Income; (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Consolidated Financial Statements. +104 The cover page of the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021, formatted in Inline XBRL (included in Exhibit 101). +* Management contract or compensatory plan or arrangement. +Item 16. Form 10-K Summary +None. +80 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: February 24, 2022 By: /s/ Brendan L. Hoffman +Brendan L. Hoffman +President and Chief Executive Officer (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Brendan L. Hoffman President and Chief Executive Officer (Principal Executive Officer) February 24, 2022 +Brendan L. Hoffman +/s/ Michael D. Stornant Senior Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) February 24, 2022 +Michael D. Stornant +/s/ Blake W. Krueger Executive Chairman February 24, 2022 +Blake W. Krueger +/s/ Jeffrey M. Boromisa Director February 24, 2022 +Jeffrey M. Boromisa +/s/ Gina R. Boswell Director February 24, 2022 +Gina R. Boswell +/s/ William K. Gerber Director February 24, 2022 +William K. Gerber +/s/ David T. Kollat Director February 24, 2022 +David T. Kollat +/s/ Brenda J. Lauderback Director February 24, 2022 +Brenda J. Lauderback +/s/ Nicholas T. Long Director February 24, 2022 +Nicholas T. Long +/s/ David W. McCreight Director February 24, 2022 +David W. McCreight +/s/ Kathleen Wilson-Thompson Director February 24, 2022 +Kathleen Wilson-Thompson +81 +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +(In millions) Balance at +Beginning of +Period +Charged to +Costs and +Expenses Deductions +(Describe) Balance at +End of +Period +Fiscal Year Ended January 1, 2022 +Deducted from asset accounts: +Allowance for credit losses $ 6.7 $ ( 2.4 ) $ 0.3 (A) $ 4.0 +Allowance for sales returns 15.6 52.5 51.5 (B) 16.6 +Allowance for cash discounts and customer markdowns 11.2 9.4 12.9 (C) 7.7 +Inventory valuation allowances 9.1 5.6 4.0 (D) 10.7 +Total $ 42.6 $ 65.1 $ 68.7 $ 39.0 +Fiscal Year Ended January 2, 2021 +Deducted from asset accounts: +Allowance for credit losses $ 6.0 $ 9.7 $ 9.0 (A) $ 6.7 +Allowance for sales returns 11.4 41.5 37.3 (B) 15.6 +Allowance for cash discounts and customer markdowns 9.3 19.8 17.9 (C) 11.2 +Inventory valuation allowances 7.3 9.3 7.5 (D) 9.1 +Total $ 34.0 $ 80.3 $ 71.7 $ 42.6 +Fiscal Year Ended December 28, 2019 +Deducted from asset accounts: +Allowance for credit losses $ 4.0 $ 5.1 $ 3.1 (A) $ 6.0 +Allowance for sales returns 13.6 50.2 52.4 (B) 11.4 +Allowance for cash discounts and customer markdowns 9.0 15.3 15.0 (C) 9.3 +Inventory valuation allowances 8.3 6.9 7.9 (D) 7.3 +Total $ 34.9 $ 77.5 $ 78.4 $ 34.0 +(A) Accounts charged off, net of recoveries. +(B) Actual customer returns. +(C) Discounts given to customers. +(D) Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2021/0000110471-22-000008/filing_metadata.csv b/raw/filings/0000110471/2021/0000110471-22-000008/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..6b02e8a6e86ad1e9627bb7bf06498312a3097558 --- /dev/null +++ b/raw/filings/0000110471/2021/0000110471-22-000008/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2022-02-24,2022-01-01,2022-02-24T19:53:46.000Z,0000110471-22-000008,www-20220101.htm,FORM 10-K,14281547,1,1,https://www.sec.gov/Archives/edgar/data/110471/000011047122000008/www-20220101.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047122000008/,2021,2021,1 diff --git a/raw/filings/0000110471/2021/0000110471-22-000008/item1.txt b/raw/filings/0000110471/2021/0000110471-22-000008/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..94b046fafbaef5a06bd1ff17062060b22bf8a034 --- /dev/null +++ b/raw/filings/0000110471/2021/0000110471-22-000008/item1.txt @@ -0,0 +1,89 @@ +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments. +• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and +• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Sweaty Betty ® activewear business, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate e xpenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s consumer-direct businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Wolverine Michigan Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you come from, who you love, or how you move. With a persistent focus on innovation, thoughtful design and rigorous testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +5 +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children - sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path; men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories across three strategic territories; Work, Outdoor and Casual. The brand is best known for DuraShocks and Ultraspring comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Chaco ® : Chaco ® has a rich, 30+ year history of creating footwear that’s “Fit For Adventure” of any kind, whether that’s exploring rivers, trails or swerving city streets. Originating as an innovation in the whitewater rafting world, Chaco ® now designs footwear for all walks of life in the outdoor and lifestyle communities. The brand's mission is to help people find their way, providing access to new people, places, and experiences that make them more confident in who they are and where they’re headed. That’s why Chaco ® creates footwear that comes with all-terrain versatility, a unique 360° fit, unmatched durability and signature LUVSEAT™ footbed arch support. The MyChacos custom sandal program provides customers an opportunity to express their funky individuality, while the ReChaco program helps reduce their impact on the places they explore by repairing used sandals. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders, U.S. Military members and military members of several foreign countries. Civilian uniform users include police officers, fire fighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle , casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +Hytest ® Safety Footwear: The Hytest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. Hytest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +2. Wolverine Boston Group +Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as +6 +well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony's ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as in Company owned Saucony ® retail stores and an eCommerce site. +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® is a market leader in both boat shoes and wet weather boots, and has expanded its business into casuals and sneakers. The brand is primarily distributed through Sperry.com and in Company owned Sperry ® retail stores, as well as leading premium and better lifestyle retailers. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Ever since the creation of the iconic Keds ® Champion "sneaker" back in 1916, Keds ® has held the belief that when we feel comfortable inside and out, we can leap forward and make our marks on the world. This belief continues to inspire and drive us every day. Keds ® designs every product to support everyone—to give them the versatility, comfort, and style they need to confidently live as their truest selves. Keds ® is focused on driving unique marketing and product stories through Keds.com and distributing footwear at leading footwear retailers worldwide. +Kids' Footwear: The Kids' footwear business includes footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® a nd Cat ® , as well as a licensed business, Stride Rite ® . Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are distributed through premium and better lifestyle retailers, outdoor and sporting goods retailers, as well as through an eCommerce site and by a license partner. With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Other Businesses +In addition to its reportable segments, the Company operates the Sweaty Betty ® activewear business, a performance leather business, sourcing operations and a multi-brand consumer-direct business. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, Europe and Asia and the world’s best luxury retailers, including Selfridges, Harrods, Neiman Marcus and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Consumer-Direct Division: The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfoli o and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel approach and +7 +includes various means of delivery, such as print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective marketing tools to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico, Colombia and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +8 +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company has a diversified supply base of raw pigskins and currently purchases a majority of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , Hytest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® , Sweaty Betty ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license was recently renewed and the license term runs through December 31, 2028 and the Harley-Davidson ® license term runs through December 31, 2022. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, the Revolving Facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events, including pandemics such as COVID-19. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +9 +Human Capital Resources +Employee Profile : As of January 1, 2022, the Company had approximately 4,400 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and the Company works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and continually developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for team members. We maintain an engaging modern recruitment marketing website to tell the Company's compelling story of opportunity and inclusion. Development starts on day one with an enriching day one experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints through surveys, including a day one survey, 90 days into their career, regular pulse and check in surveys, and exit surveys. These insights have been especially valuable during the COVID-19 pandemic to understand and develop solutions to maintain a positive employee well-being. The Company's annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of the most up-to-date and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the employees’ region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state of the art Fitness Center, Child Care, and Doggie Day Care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders through partnerships with top educational institutions which focuses both on business leadership and capabilities needed to evolve the Company's businesses, and on people leadership capabilities to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is viewed as critical to the Company's future success. To enhance the development of employees, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion: The Company is committed to having a diverse and inclusive workforce which is reflected in the wide range of cultures, religions, ethnicities and nationalities, as well as varied professional and educational backgrounds currently represented at the Company. Because the Company believes in cultivating a well-rounded, diverse workforce, the Company continuously seeks out individuals who reflect and support the goal of maintaining a diverse corporation. We have further prioritized diversity and inclusion by hiring an expert partner to help us build a framework to promote an inclusive environment today and into the future in order to make the Company an even greater place to work. The Company's major development focus over the next year will be in implementing a comprehensive diversity, equity, and inclusion learning program which includes learning on inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. The Company's focus on the health and safety of its workforce is also evidenced by the actions it has taken in response to the COVID-19 pandemic around the globe, including: +• Increasing employees' work from home flexibility; +• Adjusting attendance policies to encourage those who are sick to stay home; +• Increasing cleaning protocols; +• Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures; +• Implementing temperature screening of employees at the majority of its distribution facilities; +• Establishing new physical distancing procedures for employees who need to be onsite; +• Providing additional personal protective equipment and cleaning supplies; +• Modifying work spaces with plexiglass dividers and touchless faucets; +• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure; +10 +• Prohibiting all domestic and international non-essential travel for all employees; and +• Requiring masks to be worn in all locations where allowed by local law. +The Company distributes its products to a variety of customers, many of which are deemed essential, including customers in the health and safety, critical construction, food and agriculture, and energy sectors. As a result, the majority of the Company's distribution facilities have continued operating since the COVID-19 pandemic began. In order to keep distribution facilities open, the Company invested in creating physically safe work environments for employees. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2021/0000110471-22-000008/item13.txt b/raw/filings/0000110471/2021/0000110471-22-000008/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c6b4e0ce38d9f5c5ef9827895af49bfa95096deb --- /dev/null +++ b/raw/filings/0000110471/2021/0000110471-22-000008/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". \ No newline at end of file diff --git a/raw/filings/0000110471/2021/0000110471-22-000008/item9a.txt b/raw/filings/0000110471/2021/0000110471-22-000008/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..fb4d272d060205a698a83e607676007c63a8426e --- /dev/null +++ b/raw/filings/0000110471/2021/0000110471-22-000008/item9a.txt @@ -0,0 +1,8 @@ +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of January 1, 2022, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of January 1, 2022. The Company excluded Lady of Leisure InvestCo Limited, acquired on August 2, 2021, from the evaluation of internal control over financial reporting as of January 1, 2022. The total assets of Lady of Leisure InvestCo Limited that are subject to the Company's evaluation, represent approximately 4% of consolidated assets at January 1, 2022. The total revenues of Lady of Leisure InvestCo Limited represent approximately 5% of the consolidated revenues for the year ended January 1, 2022. +The effectiveness of the Company’s internal control over financial reporting as of January 1, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended January 1, 2022 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company has excluded Lady of Leisure InvestCo Limited from the assessment of internal control over financial reporting as of January 1, 2022 because it was acquired by the Company in a business combination during the year ended January 1, 2022. \ No newline at end of file diff --git a/raw/filings/0000110471/2021/0000110471-22-000008/rp_note.txt b/raw/filings/0000110471/2021/0000110471-22-000008/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000110471/2021/0000110471-22-000008/rpt_disclosure.txt b/raw/filings/0000110471/2021/0000110471-22-000008/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..83a4fd007f2da63043318d06fdf7d2631bd83328 --- /dev/null +++ b/raw/filings/0000110471/2021/0000110471-22-000008/rpt_disclosure.txt @@ -0,0 +1,49 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since January 2, 2022, the Company has not engaged in any “related person” transactions with any person who +is or was during the last fiscal year a director, executive officer, nominee for director or holder of 5% or more of Company voting securities, affiliate or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. +They require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify +the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or +relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +The aggregate amount involved is or is expected to exceed $120,000 since the beginning of Wolverine +Worldwide's last completed fiscal year; +(2) +Wolverine Worldwide is a participant; and +(3) +Any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +Any employment compensation paid to an executive officer of the Company if the Compensation Committee +approved or recommended to the Board of Directors for approval of such compensation; +(2) +Any compensation paid to a director for service as a director of the Company; +(3) +Any transaction in which a Related Person has an indirect interest solely as a result of being (i) a +director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together +with all other Related Persons, has an interest of less than 10%; +(4) +Any transaction in which the Related Person's interest arises solely from the ownership of the Company's +common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend); or +(5) +Any transaction with another publicly traded company where the Related Person's interest arises solely +from the ownership of more than 5% of the Company's common stock and the ownership of a non-controlling interest in the other publicly traded company. +Related Person +Any: +(a) +Person who is or was at any point during the last fiscal year for which Wolverine Worldwide filed an +Annual Report on Form 10-K and Proxy Statement, an executive officer, director or, to the extent information regarding such nominee is being presented in a proxy or information statement relating to the election of that nominee as a +director, nominee for election as a director; +(b) +Beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +Immediate family member* of any of the foregoing. +* +Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, +mothers and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law, and anyone residing in such person's home (other than a tenant or employee). +The Governance Committee considers whether the Interested Transaction is on terms no less favorable than +terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any +discussion or approval of an Interested Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. \ No newline at end of file diff --git a/raw/filings/0000110471/2022/0000110471-23-000021/filing.txt b/raw/filings/0000110471/2022/0000110471-23-000021/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..279e068e2b84a653e5eeb947b887cf9ca6c48a35 --- /dev/null +++ b/raw/filings/0000110471/2022/0000110471-23-000021/filing.txt @@ -0,0 +1,2135 @@ +www-20221231 +12/31 2022 FY 0000110471 false 1 1 320,000,000 320,000,000 52 52 53 http://fasb.org/us-gaap/2022#PrepaidExpenseAndOtherAssets http://fasb.org/us-gaap/2022#OtherNonoperatingIncomeExpense 5 http://fasb.org/us-gaap/2022#OtherAccruedLiabilitiesCurrent http://fasb.org/us-gaap/2022#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2022#OtherAccruedLiabilitiesCurrent http://fasb.org/us-gaap/2022#OtherLiabilitiesNoncurrent 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2021-01-03 2022-01-01 0000110471 us-gaap:InventoryValuationReserveMember 2021-01-02 0000110471 us-gaap:InventoryValuationReserveMember 2021-01-03 2022-01-01 0000110471 us-gaap:AllowanceForCreditLossMember 2019-12-28 0000110471 us-gaap:AllowanceForCreditLossMember 2019-12-29 2021-01-02 0000110471 us-gaap:SalesReturnsAndAllowancesMember 2019-12-28 0000110471 us-gaap:SalesReturnsAndAllowancesMember 2019-12-29 2021-01-02 0000110471 www:ReserveforPromptPaymentDiscountsMember 2019-12-28 0000110471 www:ReserveforPromptPaymentDiscountsMember 2019-12-29 2021-01-02 0000110471 us-gaap:InventoryValuationReserveMember 2019-12-28 0000110471 us-gaap:InventoryValuationReserveMember 2019-12-29 2021-01-02 +UNITED STATES +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 31, 2022 +or +☐ 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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware 38-1185150 +State or other jurisdiction of +incorporation or organization (I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E. +Rockford , Michigan 49351 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $1 Par Value WWW New York Stock Exchange +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. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ +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 þ Accelerated filer ☐ +Non-accelerated filer +¨ +Smaller reporting company ☐ +Emerging growth company ☐ +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 Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on July 1, 2022, the last business day of the registrant’s most recently completed second fiscal quarter: $ 1,520,484,722 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 10, 2023 : 78,933,602 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting expected to be held May 3, 2023 are incorporated by reference into Part III of this report. +Table of Contents +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +11 +Item 1B. +Unresolved Staff Comments +22 +Item 2. +Properties +22 +Item 3. +Legal Proceedings +22 +Item 4. +Mine Safety Disclosures +22 +Supplemental Item. +Executive Officers of the Registrant +22 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +23 +Item 6. +Reserved +25 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +25 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +35 +Item 8. +Financial Statements and Supplementary Data +37 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +78 +Item 9A. +Controls and Procedures +78 +Item 9B. +Other Information +78 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +78 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +78 +Item 11. +Executive Compensation +78 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +79 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +80 +Item 14. +Principal Accountant Fees and Services +80 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +80 +Item 16. +Form 10-K Summary +84 +SIGNATURES +85 +Appendix A: Financial Statement Schedule +A-1 +3 +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• the inability for any reason to effectively compete in global footwear, apparel and direct-to-consumer markets; +• the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• the inability to effectively manage inventory levels; +• increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• foreign currency exchange rate fluctuations; +• currency restrictions; +• supply chain and capacity constraints, production disruptions, including reduction in operating hours, labor shortages, and facility closures resulting in production delays at the Company’s manufacturers due to disruption from the effects of the COVID-19 pandemic, quality issues, price increases or other risks associated with foreign sourcing; +• the cost, including the effect of inflationary pressures and availability of raw materials, inventories, services and labor for contract manufacturers; +• labor disruptions; +• changes in relationships with, including the loss of, significant wholesale customers; +• risks related to the significant investment in, and performance of, the Company’s direct-to-consumer operations; +• risks related to expansion into new markets and complementary product categories as well as direct-to-consumer operations; +• the impact of seasonality and unpredictable weather conditions; +• the impact of changes in general economic conditions and/or the credit markets on the Company’s manufacturers, distributors, suppliers, joint venture partners and wholesale customers; +• changes in the Company’s effective tax rates; +• failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• the risks of doing business in developing countries and politically or economically volatile areas; +• the ability to secure and protect owned intellectual property or use licensed intellectual property; +• the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; +• risks of breach of the Company’s databases or other systems, or those of its vendors, which contain certain personal information, payment card data or proprietary information, due to cyberattack or other similar events; +• problems affecting the Company's supply chain and distribution system, including service interruptions at shipping and receiving ports; +• strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, including Sweaty Betty ® , and implementing new initiatives and ventures; +• risks related to stockholder activism; +• the potential effects of the COVID-19 pandemic or future health crises on the Company’s business, operations, financial results and liquidity; +• the risk of impairment to goodwill and other intangibles; +• the success of the Company’s restructuring and realignment initiatives undertaken from time to time; and +• changes in future pension funding requirements and pension expenses. +These or other uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Any standards of measurement and performance made in reference to our environmental, social, governance and other sustainability plans and goals are developing and based on assumptions, and no assurance can be given that any such plan, initiative, projection, goal, commitment, expectation or prospect can or will be achieved. +4 +PART I +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Sperry ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +During the 2022 fiscal year, the Company’s portfolio of brands was organized into the following three reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; and +• Lifestyle Group , consisting of Sperry ® footwear, Keds ® footwear, and Hush Puppies ® footwear and apparel. +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of the gain on the sale of the Champion trademarks in 2022 and unallocated corporate expenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and goodwill, reorganization activities, and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s direct-to-consumer businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Active Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you come from, who you love, or how you move. With a persistent focus on innovation, thoughtful design and rigorous testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +5 +Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony's ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as in Company owned Saucony ® retail stores and an eCommerce site. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, Europe and Asia and the world’s best luxury retailers, including Selfridges, Harrods, Neiman Marcus and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Chaco ® : Chaco ® has a rich, 30+ year history of creating footwear that’s “Fit For Adventure” of any kind, whether that’s exploring rivers, trails or swerving city streets. Originating as an innovation in the whitewater rafting world, Chaco ® now designs footwear for all walks of life in the outdoor and lifestyle communities. The brand's mission is to help people find their way, providing access to new people, places, and experiences that make them more confident in who they are and where they’re headed. That’s why Chaco ® creates footwear that comes with all-terrain versatility, a unique 360° fit, unmatched durability and signature LUVSEAT™ footbed arch support. The MyChacos custom sandal program provides customers an opportunity to express their funky individuality, while the ReChaco program helps reduce their impact on the places they explore by repairing used sandals. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +2. Work Group +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path: men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories across three strategic territories: Work, Outdoor and Casual. The brand is best known for DuraShocks and Ultraspring comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children, sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders, U.S. Military members and military members of several foreign countries. Civilian uniform users include police officers, fire fighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle , casual, fashion, work and western footwear for men, women and kids. +6 +Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HYTEST ® Safety Footwear: The HYTEST ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HYTEST ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +3. Lifestyle Group +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® is a market leader in both boat shoes and wet weather boots, and has expanded its business into casuals and sneakers. The brand is primarily distributed through Sperry.com and in Company owned Sperry ® retail stores, as well as leading premium and better lifestyle retailers. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Ever since the creation of the iconic Keds ® Champion "sneaker" back in 1916, Keds ® has held the belief that when we feel comfortable inside and out, we can leap forward and make our marks on the world. This belief continues to inspire and drive us every day. Keds ® designs every product to support everyone—to give them the versatility, comfort, and style they need to confidently live as their truest selves. Keds ® is focused on driving unique marketing and product stories through Keds.com and distributing footwear at leading footwear retailers worldwide. Effective February 4, 2023 the Company sold the global Keds ® business to Designer Brands, Inc. (the "Buyer") pursuant to an Asset Purchase Agreement between the Company and the Buyer dated February 7, 2023. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through eCommerce sites. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Other Businesses +In addition to its reportable segments, the Company operates a performance leather business, sourcing operations, a multi-brand direct-to-consumer business, and the licensing of its Stride Rite ® brand. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Direct-to-Consumer Division: The multi-brand direct-to-consumer division includes retail stores that sell footwear and apparel from the Company's brand portfoli o and other brands. +Stride Rite ® Licensed Business: With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel approach and +7 +includes various means of delivery, such as print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective marketing tools to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own direct-to-consumer business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +8 +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company has a diversified supply base of raw pigskins and currently purchases a majority of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies®, Wolverine®, Bates®, Bounce®, Chaco®, HYTEST®, Merrell®, Sperry®, Saucony®, Stride Rite®, Sweaty Betty® , and related logos and design marks. The Company’s Wolverine Leathers Division markets its pigskin leathers under trademarks such as Silkee® and Weather-Tight® . The Company has footwear marketing and distribution rights under the Cat® and Harley-Davidson® trademarks pursuant to license arrangements with the respective trademark owners. The Cat® license was recently renewed and the license term runs through December 31, 2028 and the Harley-Davidson® license term runs through December 31, 2023. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically reflecting an increase in net working capital requirements near the end of the first and third fiscal quarters as the Company builds inventory to support peak shipping periods. Historically, cash provided by operating activities is higher in the second half of the fiscal year due to collection of wholesale channel receivables and higher direct-to-consumer sales during the holiday season. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under its revolving credit facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events, including pandemics. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +9 +Human Capital Resources +Employee Profile : As of December 31, 2022, the Company had approximately 4,300 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and the Company works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and continually developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for team members. We maintain an engaging modern recruitment marketing website to tell the Company's compelling story of opportunity and inclusion. Development starts on day one with an enriching day one experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints throughout the employee lifecycle, including a day one survey, a survey 90 days after they begin their career at the Company, regular pulse and check in surveys, and exit surveys. Insights from these surveys have been especially valuable as the COVID-19 pandemic evolves to understand employees' needs and to develop solutions to maintain a positive employee well-being. The Company's annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of the most up-to-date and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the Company's employees’ respective geographic region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state-of-the-art fitness center, child care, and doggie day care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders in which we partner with top educational institutions. This program focuses on sharpening participants' business leadership capabilities needed to grow the Company's businesses and people leadership capabilities needed to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is critical to our future success. To enhance employees career development, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion : The Company's commitment to a diverse and inclusive workforce is reflected in the wide range of cultures, religions, ethnicities and nationalities, as well as varied professional and educational backgrounds currently represented in the Company's workforce. Because the Company believes in cultivating a well-rounded, diverse workforce, the Company continuously seeks out individuals who reflect and support this goal. We have further prioritized diversity and inclusion by hiring an expert partner to help us build a framework to promote an inclusive environment today and into the future in order to make the Company an even greater place to work. Over the past two years, the Company's major development focus has been implementing a comprehensive diversity, equity, and inclusion learning program which includes learning on inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. The Company's focus on the health and safety of its workforce is also evidenced by the actions it has taken in response to the COVID-19 pandemic around the globe, including: +• Increasing employees' work from home flexibility; +• Adjusting attendance policies to encourage those who are sick to stay home; and +• Increasing cleaning protocols. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor- +10 +relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. Risk Factors +Business and Operational Risks +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to new competition, changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated and associate its brands with styles that are no longer popular, which would decrease demand for its products. Such failures could result in loss of market share, reduced sales, excess inventory, trade name impairments, lower gross margin and other adverse impacts on the Company’s operating results. +Significant capacity constraints, production disruptions, inventory management, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. The Company may experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, inventory management, failure to make products that meet applicable quality standards, or increases in labor and other manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Other adverse developments, such as pandemics or other health crises, could cause significant production and shipping delays. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor disputes or severe weather due to climate change. These issues have in the past and may in the future delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher costs, which could have an adverse impact on the Company’s business and financial condition. +Infectious disease outbreaks that are considered pandemics, such as the COVID-19 pandemic, have had and could continue to have a material adverse effect on the company's business. +The Company's business could be adversely affected by infectious disease outbreaks, such as the COVID-19 pandemic. The COVID-19 pandemic has negatively affected the global economy, disrupted consumer spending and global supply chains, and significantly increased the volatility and disruption of financial markets both globally and in the U.S. These conditions following the onset of the COVID-19 pandemic led to a decline in discretionary spending by consumers that had a negative +11 +effect on the Company's financial condition and results of operations in 2020. There can be no assurance that these conditions will not recur and negatively affect the Company's financial condition and results of operations in future periods. The extent to which the COVID-19 pandemic, or other health crises impacts the Company’s business, operations and financial results, including the duration and magnitude of such effects, will depend on numerous factors outside of the Company's control, such as, the duration and scope of the pandemic or other health crisis and effectiveness of containment efforts; the negative impact on global and regional economies and economic activity, including the duration and magnitude of its impact on unemployment rates, consumer discretionary spending and levels of consumer confidence; and actions governments, businesses and individuals may take in response to the pandemic or other health crisis. Potential impacts to the Company’s business can be materially adversely affected by several factors related to the COVID-19 pandemic or another health crisis, including, but not limited to: +• The inability of employees, suppliers and other business providers to carry out tasks at ordinary levels of performance as a result of safety measures taken to limit the spread of infectious disease outbreaks. +• Outbreaks requiring the closure of retail stores operated by the Company or the Company's wholesale customers; +• Decreased retail traffic resulting from social distancing measures, store closures, reduced operating hours, and/or changes in consumer behavior. +• Negative effects on consumer spending due to general macroeconomic conditions, decreased disposable income and increased unemployment. +• Wholesale and distributor customer order cancellations due to lower consumer demand. +• Decline in the performance or financial condition of the Company’s major wholesale customers as a result of retail store closures, bankruptcy or liquidation. +• Consumer demand for our products may be adversely impacted by economic conditions. +• Disruption to the operations of the Company’s distribution centers and its third-party manufacturers because of facility closures, reductions in operating hours, labor or material shortages, travel limitations or mass transit disruptions. +• Additional expenses related to mitigating the pandemic’s impact on regular operations. +• Supply chain disruption effecting the Company's ability to receive and distribute goods as well as increases in supply chain costs. Disruptions in the supply chain related to the COVID-19 pandemic have had an adverse effect and may continue to have an adverse effect on the Company's ability to meet consumer demand and financial results. +• Increased cyber security risk due to the increase in the number of employees working remotely. +• Volatility in the availability and prices for commodities for raw materials used in the Company's products and related inflationary pressures. +The COVID-19 pandemic or another health crisis may also affect the Company's operating and financial results in a manner that is not presently known to the Company or that the Company does not currently believe presents significant risks to its operations. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have an adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +If the Company is unable to hire qualified persons for, or retain and continue to develop, its workforce, its results of operations could be adversely affected. +The future success of the Company also depends on its ability to attract and retain qualified personnel, including in its product, eCommerce, and leadership teams. Competition for such personnel in the Company's industry is intense. If the Company fails to attract and retain such employees, it may not be successful in developing and implementing its business strategies. The Company’s ability to hire and retain qualified personnel may be affected by a number of factors, including: the ability to attract and motivate employees; the competition the Company faces from other companies in hiring and retaining qualified personnel; and the Company’s ability to offer employees remote work opportunities. If the Company is unable to hire and retain employees capable of performing at a high level, its business, including cash flows, results of operations, employee satisfaction, and reputation, could be adversely affected. +12 +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or canceling orders, or the failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success depends on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. In fiscal 2022, the Company experienced a higher rate of wholesale customer cancellatinos as retail customers sought to manage higher inventory levels and supply chain disruption. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company’s direct-to-consumer operations continue to require substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s direct-to-consumer operations, including its brick and mortar locations as well as its eCommerce and mobile channels, require substantial fixed investment in equipment and leasehold improvements, information systems, cyber-security infrastructure, inventory and personnel. The Company also has substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar direct-to-consumer operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs. The success of its direct-to-consumer operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company has made and will continue to make significant investments in building technologies and digital capabilities. As omni-channel retailing continues to evolve, the Company’s customers are increasingly more likely to shop across multiple channels that work in tandem to meet their needs. The Company’s failure to successfully respond to these factors could adversely affect the Company’s direct-to-consumer business, as well as limit the Company's ability to successfully develop and expand the omni-channel experience for customers, damage its reputation and brands, and have an adverse effect on the Company’s results of operations and financial position. +The Company’s reputation and competitive position depend on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could be subject to negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +13 +Disruption of the Company’s eCommerce platform or other information technology systems could adversely affect the Company’s business. +The Company’s information technology systems, including its eCommerce platform, are critical to the operations of its business. Any future material interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistics and distribution systems include computer-controlled and automated equipment, which are subject to a number of risks related to computer system upgrades, data accuracy, security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. These operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers or other events over which the Company has no control, such as pandemics. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity depends upon the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected. +The Company faces risks associated with its growth strategies including acquiring and disposing of businesses. +The Company has expanded its products and markets in part through strategic acquisitions, including the acquisition of the Sweaty Betty ® brand in the third quarter of fiscal 2021, and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits of the acquisition on a timely basis or at all; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company may not be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but still incur material costs in connection with an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +From time to time, the Company may seek to sell one or more businesses, or sell or license one or more brands. As part of the Company’s strategy to ensure that it is investing in parts of its business that offer the greatest opportunities to achieve growth, the Company is currently seeking to sell its Wolverine Leathers Division, and the Company on February 7, 2023 closed the sale of the Keds® business. These transactions may involve challenges and risks. There can be no assurance that future divestitures will occur, or if a transaction does occur, there can be no assurance as to the potential value created by the transaction. The process of exploring strategic alternatives or selling a business could cause uncertainty and negatively impact our ability to attract, retain and motivate key employees. In addition, the Company expends costs and management resources to complete divestitures and manage post-closing arrangements. Any failures or delays in completing divestitures could have an adverse effect on the Company’s financial results and ability to execute its strategy. +14 +The Company’s international operations may be affected by legal, regulatory, political and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political and economic risks. These include: +• the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• unexpected changes in regulatory requirements; and +• new tariffs or other barriers in some international markets, including China. +The Company is also subject to general political and economic risks in connection with its international operations, including: +• political instability, war and terrorist attacks; +• differences in business culture; +• different laws governing relationships with employees and business partners; +• changes in diplomatic and trade relationships, including with China; and +• general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the U.S. or foreign countries upon the import or export of the Company's products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have an adverse effect on the Company’s business in the future or may require the Company to exit a particular market or significantly modify the Company's current business practices. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, the Company's foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. When the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits denominated in foreign currencies are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. The Company may seek to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, but the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on the Company’s business and results of operations. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. Decreases in the returns provided to our stockholders may ultimately adversely affect our business, results of operations and financial condition. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• In the wholesale business, sales of footwear depend on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• Changes to the Company's estimated annual tax rate which is based on projections of its domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +15 +• The Company's earnings are also sensitive to a number of factors that are beyond the Company’s control, including certain manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates are based upon their own opinions and are often different from the Company’s estimates or expectations. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +Decreases in the trading price of our stock may adversely affect the returns our stockholders realize from ownership of our stock. Such adverse effects, as well as other factors, may cause stockholders to take actions to involve themselves in the strategic direction and governance of the Company, including through private engagement, publicity campaigns, stockholder proposals and proxy contests. Responding to these actions can be costly and time-consuming and could divert the attention of our board and senior management from managing our operations and pursuing our business strategies. +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s results of operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global, regional or local economic conditions, and how such conditions may impact them. Disposable income and consumer spending may decline due to inflation, recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer spending has adversely affected demand for the Company’s products, and could further adversely affect demand and Company's results of operations. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and direct-to-consumer footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able, or elect, to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and direct-to-consumer businesses. The Company’s competitors may own or license brands with greater name recognition; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences quickly will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are dependent on future weather conditions and its ability to react to changes in weather conditions. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +16 +Changes in general economic conditions and/or the credit markets affecting the Company's distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could have an adverse impact on the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact the Company's third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet consumers’ demands and, in turn, the Company's results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 170 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts and concerns regarding public health threats, such as the COVID-19 pandemic, have created and may in the future create significant global economic and political uncertainties that may have adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in markets in which the Company operates could have an adverse effect on the Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in markets in which the Company operates, or in its industry. +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Financial Risks +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate inventory. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions, including those due to changes in trade relations between the U.S. and other countries, may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +17 +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products depends on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, transportation and shipping, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +The Company purchases a majority of the pigskin hides used in its leathers operations from a single domestic source pursuant to short-term contracts. If this source fails to continue to supply the Company with raw pigskin or supplies the Company with raw pigskin on less favorable terms, the Company’s cost of raw materials for its leathers operations could increase and, as a result, have a negative impact on the Company’s results of operations and financial position. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have an adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on non-cash undistributed earnings that it intends to permanently reinvest in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have an adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. The final determination of any of these examinations could have an adverse effect on the Company’s results of operations and financial position. +An impairment of goodwill or other intangibles could have an adverse impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect the Company’s results of operations, such as the impairments recorded associated with the Sweaty Betty ® trade name and goodwill in fiscal 2022 and the Sperry ® trade name in fiscal 2022 and 2020. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and the Company may be unable to satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or +18 +reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +Legal and Regulatory Risks +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive depends upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the licensor of any of these license agreements could have an adverse effect on the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations in the countries and territories in which the Company operates and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks. +Companies are facing increasing and frequently evolving scrutiny globally from customers, regulators, investors, employees and other stakeholders related to their ESG practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, board and workforce diversity, labor conditions, human rights, and cybersecurity and data privacy. Third parties have also developed proprietary ratings or analyses of companies based on certain ESG metrics. Increased ESG-related compliance costs could result in increases to the Company’s overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or other stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. The Company’s ESG initiatives and goals may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future. As we report on our ESG initiatives or goals, we may be subject to heightened reputational and operational risk and compliance costs related to these matters. Complying with increased regulations could increase the Company’s costs and adversely impact results of operations. The Company’s inability or failure to meet, or the perceived failure to meet, such stakeholders’ expectations, as well as adverse incidents, could negatively impact the Company’s stock price, results of operations, or reputation and increase the cost of capital. +19 +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company's operations have become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible adverse impact on its financial condition and results of operations. The Company's insurance coverage may be insufficient to cover all losses and would not remedy damage to the Company's reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s direct-to-consumer operations. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Various third parties have brought, and in the future could bring actions against the Company alleging health-related or other harm arising from non-compliance. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. For example, regulatory actions, punitive class actions lawsuits and individual lawsuits have been filed against the Company alleging claims relating to property damage, remediation and human health effects, among other claims, arising from the Company’s operations, including its handling, storage, treatment, transportation and/or disposal of waste. These claims are discussed in more detail in Note 17 to the Company's Consolidated Financial Statements. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +20 +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company that might benefit the Company's stockholders. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to replace the majority of the Company's directors and take other corporate actions that may be beneficial to the Company’s stockholders. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could negatively impact the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company is subject to a broad array of applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If the Company is not able to comply with any applicable requirements, the Company's reputation could be negatively impacted and the Company may be subject to proceedings or actions against it by governmental entities or others. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to remain in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, and the Company’s ability to effectively engage customers via personalized marketing may decrease which could potentially impact growth. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test determines that the Company needs to take steps to remediate any deficiencies, the Company may be required to undertake remediation efforts, which may be costly or could result in periods of time during which the Company cannot accept payment cards. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could impact growth opportunities. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +The Company is also subject to U.S. and international data privacy and cybersecurity laws and regulations, which may impose fines and penalties for noncompliance and may have an adverse effect on the Company's operations. For example, the General Data Protection Regulation ("GDPR"), which applies in all European Union member states, introduced new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. GDPR increases our responsibility and potential liability in relation to personal data that we collect, process and transfer, and we have put in place additional mechanisms designed to ensure compliance with the new data protection rules. Any failure to comply with these rules and related national laws of European Union member states, could lead to government enforcement actions and significant penalties against us, and could adversely affect our business, financial condition, cash flows and results of operations. In addition, the California Consumer Privacy Act (“CCPA”) limits how we may collect and use personal data. The effects of the CCPA governs the Company's data processing practices and policies. Additionally, other states have adopted, or are considering enacting, similar laws that may affect the Company's data processing practices and policies. +21 +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company's internal control policies and procedures may not protect it from reckless or criminal acts committed by its employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in an adverse effect on the results of operations or financial condition. +Item 1B. Unresolved Staff Comments +None. +Item 2. Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 307,000 square feet in Rockford, Michigan, as well as leased facilities of approximately 102,000 square feet in Waltham, Massachusetts and 80,000 square feet in the United Kingdom. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; an owned distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center of approximately 468,000 square feet in Howard City, Michigan; a leased distribution center of approximately 242,000 square feet in Ontario, Canada and a leased distribution center of approximately 125,000 square feet in Heerhugowaard, Netherlands. +The Company also leases or owns offices, showrooms and other facilities throughout the U.S., Canada, the United Kingdom, continental Europe, Hong Kong and China to meet its operational requirements. In addition, the Company operates 154 retail stores primarily through leases with various third-party landlords in the U.S., United Kingdom, and Canada that collectively occupy approximately 350,000 square feet. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. For a discussion of legal matters, see Note 17 to the Company's Consolidated Financial Statements. +Item 4. Mine Safety Disclosures +Not applicable. +Supplemental Item. Information about our Executive Officers +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of January 31, 2023. The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, at the pleasure of management. +Name Age Positions held with the Company +Brendan L. Hoffman 54 President and Chief Executive Officer +Christopher E. Hufnagel 50 President, Active Group +Amy M. Klimek 49 Executive Vice President, Global Human Resources +Reginald M. Rasch 52 Senior Vice President, General Counsel and Secretary +Isabel Soriano 52 President, International +Michael D. Stornant 56 Executive Vice President, Chief Financial Officer and Treasurer +James D. Zwiers 55 Executive Vice President and President, Global Operations Group +Brendan L. Hoffman has served the Company as Chief Executive Officer since January 2022 and as President since September 2020. From October 2015 through August 2020, he was the Chief Executive Officer and President of Vince Holding Corp., a publicly-traded global apparel brand and retailer. +22 +Christopher E. Hufnagel has served the Company as President, Active Group since November 2022, and has served as President of the Merrell brand since September 2019. From July 2018 through September 2019, he served as President, CAT Footwear. From January 2013 through July 2018, he served as Senior Vice President and Head of Corporate Strategy. +Amy M. Klimek has served the Company as Executive Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. +Reginald M. Rasch has served the Company as Senior Vice President, General Counsel and Secretary since January 2023. From May 2021 through November 2022, he was the Chief Legal Officer and Corporate Secretary of Party City Holdco Inc., a publicly traded party goods company in North America. Mr. Rasch was employed by Rakuten, a global technology conglomerate that focuses heavily on eCommerce, digital advertising and data intelligence, from 2005 to May 2021, where he held positions of increasing responsibilities in Rakuten Americas including Head of Legal and Secretary from 2016 to May 2021. +Isabel Soriano has served the Company as President, International since June 2021. From June 2018 to May 2021, she served as Vice President and Managing Director of EMEA. From April 2014 to June 2018, she served as Vice President and General Manager for Vans, Timberland and Kipling in South America at VF Corporation, a publicly traded footwear and apparel retailer. +Michael D. Stornant has served the Company as Executive Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. +James D. Zwiers has served the Company as Executive Vice President since February 2017 and President, Global Operations Group since January 2021. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group . +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The number of stockholders of record on February 10, 2023, was 673. +A quarterly dividend of $0.10 per share was declared on February 8, 2023. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2023. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s 1500 Index and the Standard & Poor’s 1500 Consumer Durables & Apparel Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s 1500 Index and the Standard & Poor’s 1500 Consumer Durables & Apparel Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +23 +Five-Year Cumulative Total Return Summary +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2022. +Issuer Purchases of Equity Securities +Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (October 2, 2022 to November 5, 2022) +Common Stock Repurchase Program (1) +— $ — — $ 366,524,492 +Employee Transactions (2) +16,581 $ 17.18 +Period 11 (November 6, 2022 to December 3, 2022) +Common Stock Repurchase Program (1) +— $ — — $ 366,524,492 +Employee Transactions (2) +193 $ 11.20 +Period 12 (December 4, 2022 to December 31, 2022) +Common Stock Repurchase Program (1) +— $ — — $ 366,524,492 +Employee Transactions (2) +3,424 $ 10.74 +Total for the Fourth Quarter Ended December 31, 2022 +Common Stock Repurchase Program (1) +— $ — — $ 366,524,492 +Employee Transactions (2) +20,198 $ 16.03 +(1) On September 11, 2019, the Company’s Board of Directors approved a common stock repurchase program that authorized the repurchase of $400.0 million of common stock over a four-year period, incremental to the $113.4 million available as of that date for repurchases under the previous program. Since that date, the Company repurchased $146.9 million of common stock. The annual amount of any stock repurchases is restricted under the terms of the Company's amended senior credit facility and senior notes indenture. +(2) Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The +24 +Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +Item 6. Reserved +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s strategic vision is to build and grow high-energy footwear, apparel and accessories brands that inspire and empower consumers to explore and enjoy their active lives. The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global direct-to-consumer footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 170 countries and territories at December 31, 2022, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At December 31, 2022, the Company oper ated 154 retail stores in the U.S., United Kingdom, and Canada an d 63 direct-to-consumer eCommerce sites. +On July 31, 2021, the Company entered into a definitive agreement to acquire 100% of the outstanding shares of Lady of Leisure InvestCo Limited. The acquisition was completed on August 2, 2021 for $417.4 million, net of acquired cash of $7.4 million. Lady of Leisure InvestCo Limited owns the Sweaty Betty ® brand and activewear business, a premium women’s activewear brand. The acquisition was funded with cash on hand and borrowings under the Company’s Revolving Facility, as defined below. +The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2022 and 2021. A discussion of a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2021 and 2020 has been omitted from this Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC on February 24, 2022. Additional information about the reorganization of the Company's reportable segments can be found in the Company's Current Report on Form 8-K/A filed with the SEC on November 10, 2022. +Known Trends Impacting Our Business +Macroeconomic conditions and supply chain disruptions and the COVID-19 pandemic continue to have an impact on the Company’s business results. During fiscal 2021 and the first half of fiscal 2022, disruption in the global supply chain due to vessel shortages, labor and container shortages, and U.S. port congestion resulted in transportation delays that interrupted the flow of the Company’s inventory and delayed shipments to wholesale partners. As a result, the Company planned fiscal 2022 product purchases based on the assumption that extended inventory transit times would continue throughout the year. However, during the third quarter of 2022, inventory transit times improved ahead of plan, resulting in challenges managing the timing of inventory flow. As of December 31, 2022, the Company had $146.8 million of inventory in-transit, which includes both inventory in-transit to the Company's distribution centers and inventory not yet able to be processed due to processing capacity pressures at the Company’s distribution centers. As a result, the Company’s inventory levels as of December 31, 2022 were elevated compared to the prior fiscal year. The inventory in-transit balance has declined from a balance of $280.9 million at October 1, 2022. The Company increased promotional activity in the third and fourth quarters of fiscal 2022 and expects this increased level of promotional activity to continue during the first half of 2023 to reduce inventory levels. +The Company incurred higher logistics costs, including freight and labor costs, during 2022 as a result of the supply chain disruption as well as inflationary pressures. The Company implemented selective price increases by brand and product to partially offset the effects of inflation on the Company’s financial results. The Company expects to continue to evaluate future pricing of its products. In addition to inflationary headwinds, the strengthening of the U.S. dollar relative to other major currencies also negatively impacted the Company’s financial results in 2022 and is expected to have a negative impact on the Company's 2023 financial results. +In March 2022, the Company temporarily suspended all business operations in Russia due to the Russia-Ukraine conflict. The Company has no assets or employees in Russia or Ukraine. The Company’s business operations in Russia represent less than 1 percent of revenue. Please refer to Item 1A, “Risk Factors” for a more complete discussion of the risks the Company encounters in our business. +25 +2022 FINANCIAL OVERVIEW +• Revenue was $2,684.8 million for 2022, representing an increase of 11.2% compared to the prior year's revenue of $2,414.9 million. +• Gross margin for 2022 was 39.9%, a decrease of 270 basis points from 2021. +• The effective tax rate in 2022 was 25.2%, compared to 16.6% in 2021. +• Diluted loss per share in 2022 was $2.37, compared to diluted earnings per share of $0.81 in 2021. +• The Company declared cash dividends of $0.40 per share in 2022 and 2021. +• Cash flow used in operating activities was $178.9 million for 2022 and cash flow provided by operating activities was $86.8 million for 2021. +• Compared to the prior year, inventory increased $379.7 million, or 103.9% . +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +(In millions, except per share data) 2022 2021 Percent Change +Revenue +$ 2,684.8 $ 2,414.9 11.2 % +Cost of goods sold +1,614.4 1,385.0 16.6 % +Gross profit +1,070.4 1,029.9 3.9 % +Selling, general and administrative expenses +906.4 817.8 10.8 % +Gain on sale of trademarks (90.0) — — +Impairment of goodwill and intangible assets 428.7 — — +Environmental and other related costs, net of recoveries 33.7 56.4 (40.2) % +Operating profit (loss) (208.4) 155.7 (233.8) % +Interest expense, net +47.3 37.4 26.5 % +Debt extinguishment and other costs — 34.3 (100.0) % +Other expense (income), net (2.8) 3.7 (175.7) % +Earnings (loss) before income taxes (252.9) 80.3 (414.9) % +Income tax expense (benefit) (63.8) 13.3 (579.7) % +Net earnings (loss) (189.1) 67.0 (382.2) % +Less: net loss attributable to noncontrolling interests (0.8) (1.6) 50.0 % +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ (188.3) $ 68.6 (374.5) % +Diluted earnings (loss) per share $ (2.37) $ 0.81 (392.6) % +REVENUE +Revenue was $2,684.8 million for 2022, representing an increase of 11.2% compared to the prior year's revenue of $2,414.9 million. The change in revenue reflected a 19.0% increase from the Active Group, a 7.6% increase from the Work Group and a 6.2% decline from the Lifestyle Group. The Active Group's revenue increase was driven by an increase of $116.9 million from Merrell ® , $94.3 million from Sweaty Betty ® , $29.1 million from Saucony ® , and $10.3 million from Chaco ® . The Work Group’s revenue increase was driven by an increase of $32.1 million from Cat ® and $20.1 million from Wolverine ® , partially offset by a decrease of $9.2 million from Bates ® . The Lifestyle Group’s revenue decline was driven by a decrease of $33.4 million from Sperry ® and $7.8 million from Keds ® , partially offset by an increase of $11.7 million from Hush Puppies ® . International revenue represented 41.8%, and 34.8% of total reported revenues in 2022 and 2021, respectively. Changes in foreign exchange rates decreased revenue by $70.0 million during 2022. Direct-to-consumer revenue increased by $64.1 million, or 10.2% during 2022 compared to 2021. +GROSS MARGIN +For 2022, the Company’s gross margin was 39.9%, compared to 42.6% in 2021. The gross margin decrease was driven by unfavorable product mix and higher promotional activity in the Company's direct to consumer channel (150 basis points), increased closeout sales and closeout reserves (90 basis points) and unfavorable product mix and higher promotional activity across the Company's brands (30 basis points). +26 +OPERATING EXPENSES +Operating expenses increased $404.6 million in 2022, to $1,278.8 million. The increase was driven by higher impairment of intangible assets ($428.7 million), Sweaty Betty ® operating expenses included contribution through the one-year anniversary of the acquisition ($60.2 million), higher general and administrative costs ($26.6 million), higher selling costs ($10.4 million), higher distribution costs ($9.5 million), higher advertising costs ($6.0 million), higher Sweaty Betty ® integration costs ($2.0 million), and higher product development costs ($1.1 million), partially offset by the gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), lower environmental and other related costs, net of recoveries ($22.7 million), lower incentive compensation costs ($20.0 million), and lower acquisition costs ($7.5 million). Environmental and other related costs were $56.3 million and $73.9 million in 2022 and 2021, respectively. See Note 17 to the Company's Consolidated Financial Statements for further discussion. +INTEREST, OTHER AND TAXES +Net interest expense was $47.3 million in 2022 compared to $37.4 million in 2021. Interest expense increased in the current year due to higher average principal balances of variable rate debt and higher average interest rates on the Company’s variable rate debt, partially offset by lower interest rates on the Company's senior notes. The Company redeemed and replaced the 6.375% senior notes due in 2025 and the 5.000% senior notes due in 2026 with the 4.000% senior notes in August 2021 due in 2029. +The effective tax rate in 2022 was 25.2%, compared to 16.6% in 2021. The Company recognized tax benefits in 2022 which increased the tax benefit recognized from the pretax loss, resulting in a higher effective tax rate. In 2021, the Company also recognized tax benefits which reduced the tax expense on pretax income, resulting in a lower effective tax rate. +Other income was $2.8 million in 2022 compared to other expense of $3.7 million in 2021. The decrease in expense was driven by lower non-service pension costs ($3.0 million), higher sublease income ($1.8 million), and lower losses from equity method investments ($1.6 million). +REPORTABLE SEGMENTS +The Company’s portfolio of brands are organized into the following three reportable segments. During the fourth quarter of 2022, the Company announced changes to its reportable segments as a result of changes in how its Chief Operating Decision Maker, the Company's Chief Executive Officer, allocates resources to and assess performance of the Company's operating segments. All prior period disclosures have been retrospectively adjusted to reflect the new reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; and; +• Lifestyle Group , consisting of Sperry ® footwear, Keds ® footwear, and Hush Puppies ® footwear and apparel. +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of the gain on the sale of the Champion trademarks in 2022 and unallocated corporate expenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and goodwill, reorganization activities, and environmental and other related costs. +27 +The reportable segment results for years 2022 and 2021 are as follows: +Fiscal Year +(In millions) 2022 2021 Change Percent Change +REVENUE +Active Group $ 1,570.2 $ 1,319.6 $ 250.6 19.0 % +Work Group 590.5 548.8 41.7 7.6 % +Lifestyle Group 447.5 477.0 (29.5) (6.2) % +Other +76.6 69.5 7.1 10.2 % +Total +$ 2,684.8 $ 2,414.9 $ 269.9 11.2 % +OPERATING PROFIT (LOSS) +Active Group $ 198.4 $ 229.5 $ (31.1) (13.6) % +Work Group 102.5 103.8 (1.3) (1.3) % +Lifestyle Group 48.1 67.5 (19.4) (28.7) % +Other +11.8 8.1 3.7 45.7 % +Corporate +(569.2) (253.2) (316.0) (124.8) % +Total +$ (208.4) $ 155.7 $ (364.1) (233.8) % +Further information regarding the reportable segments can be found in Note 18 to the Company's Consolidated Financial Statements. +Active Group +The Active Group’s revenue increased $250.6 million, or 19.0%, in 2022 compared to 2021. The revenue increase was driven by an increase of $116.9 million from Merrell ® , $94.3 million from Sweaty Betty ® , $29.1 million from Saucony ® , and $10.3 million from Chaco ® . The Merrell ® increase was primarily due to the strength of the hike product category, which includes the industry leading Moab franchise as well as strong performance across all regions, specifically the international channel. The Sweaty Betty ® increase included contribution through the one-year anniversary of the acquisition. The Saucony ® increase was primarily driven by the strength and expanded sales of core technical road and trail product franchises which include the Ride, Guide, Kinvara, Triumph, Peregrine and Endorphin series. The Chaco ® increase was primarily the result of improved inventory positions in the current period versus the prior period which was negatively impacted by supply chain constraints. +The Active Group’s operating profit decreased $31.1 million, or 13.6%, in 2022 compared to 2021. The operating profit decrease was due to a 320 basis point decrease in gross margin and a $97.0 million increase in selling, general and administrative costs, partially offset by revenue increases. The decrease in gross margin in the current year period was due to unfavorable product mix and higher promotional activity in the Company's direct to consumer channel and increased closeout sales in the wholesale channel. The increase in selling, general and administrative expenses in 2022 includes a contribution of $60.2 million of Sweaty Betty ® operating expenses through the one-year anniversary of the acquisition, as well as higher advertising costs, labor and distribution costs and employee costs. +Work Group +The Work Group’s revenue increased $41.7 million, or 7.6%, in 2022 compared to 2021. The revenue increase was driven by an increase of $32.1 million from Cat ® and $20.1 million from Wolverine ® , partially offset by a decrease of $9.2 million from Bates ® . The Cat ® increase was primarily due to the strength of the life and work product categories. The Wolverine ® increase was primarily due to the strong performance of its core franchises which include Raider and Rancher, strength of the work product category, and expanded work footwear products. The Bates ® decline was primarily due to a reduction in military exchange customer revenue for domestically manufactured products. +The Work Group’s operating profit decreased $1.3 million, or 1.3%, in 2022 compared to 2021. The operating profit decrease was due to a 240 basis point decrease in gross margin and by a $2.9 million increase in selling, general and administrative costs, partially offset by revenue increases. The decrease in gross margin in the current year period was due to unfavorable product mix and higher promotional activity in the Company's direct to consumer channel and increased closeout sales in the wholesale channel. The increase in selling, general and administrative expenses in 2022 was primarily due to higher advertising costs, labor and distribution costs and employee costs. +28 +Lifestyle Group +The Lifestyle Group’s revenue decreased $29.5 million, or 6.2%, in 2022 compared to 2021. The revenue decrease was driven by a decrease of $33.4 million from Sperry ® and $7.8 million from Keds ® , partially offset by an increase of $11.7 million from Hush Puppies ® . The Sperry ® and Keds ® declines were primarily driven by supply chain issues and softer consumer demand in both the U.S. wholesale and direct-to-consumer sales channels. The Hush Puppies ® increase was primarily due to the launch of a strategic distribution partnership with DSW in North America and the strength of the brand’s lifestyle head-to-toe product offering internationally, with a focus on casual, comfort and color. +The Lifestyle Group’s operating profit decreased $19.4 million, or 28.7%, in 2022 compared to 2021. The operating profit decrease was due to a 150 basis point decrease in gross margin and revenue decreases, partially offset by a $0.4 million decrease in selling, general and administrative costs. The decrease in gross margin in the current year period was due to unfavorable product mix and higher promotional activity in the Company's direct to consumer channel and increased closeout sales in the wholesale channel. +Other +The Other category's revenue increased $7.1 million, or 10.2%, in 2022 compared to 2021. The revenue increase was primarily driven by an increase of $6.0 million from the performance leathers business. +Corporate +Corporate expenses increased $316.0 million in 2022 compared to 2021 primarily due to the impairment of intangible assets related to the Sperry ® trade name and Sweaty Betty ® trade name and goodwill ($428.7 million), reorganization and integration activities ($9.6 million), and higher employee costs ($7.8 million), partially offset by the gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), lower environmental and other related costs ($22.7 million), and lower incentive compensation costs ($19.2 million). +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) 2022 2021 +Cash and cash equivalents (1) +$ 135.5 $ 161.7 +Debt 1,158.0 966.8 +Available Revolving Facility (2) +569.3 769.2 +(1) Cash and cash equivalents at the end of the year in the Consolidated Statements of Cash Flows includes $4.0 million of Wolverine Leathers business related cash and cash equivalents that are classified as held for sale as of December 31, 2022 that are not included in cash and cash equivalents in the Consolidated Balance Sheets. +(2) Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Facility. +Liquidity +Cash and cash equivalents of $135.5 million as of December 31, 2022 were $26.2 million lower compared to January 1, 2022. The decrease is due primarily to cash used by operating activities of $178.9 million, share repurchases of $81.3 million, additions to property, plant, and equipment of $36.5 million, cash dividends paid of $32.8 million, and shares acquired related to employee stock plans of $7.7 million, partially offset by net revolver borrowings of $200.0 million, cash received from the sale of the Champion trademark of $90.0 million, proceeds from company-owned life insurance policies of $30.5 million, and contributions from noncontrolling interests of $7.0 million. The Company had $569.3 million of borrowing capacity available under the Revolving Facility as of December 31, 2022. Cash and cash equivalents located in foreign jurisdictions totaled $114.9 million as of December 31, 2022. +Cash flow from operating activities is expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends and for general corporate purposes. +The Company may purchase up to an additional $366.5 million of shares under its existing common stock repurchase program, which expires in 2023. The common stock repurchase program does not obligate the Company to acquire any shares and may be suspended at any time. The Company repurchased $81.3 million and $39.6 million of shares during 2022 and 2021, respectively. +29 +A detailed discussion of environmental remediation costs is found in Note 17 to the Company's Consolidated Financial Statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual affected site. As of December 31, 2022, the Company has a reserve of $74.1 million, of which $49.8 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $24.3 million recorded in other liabilities and expected to be paid over the course of up to 25 years. The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. +Note 17 to the Company's Consolidated Financial Statements also includes a detailed discussion of environmental litigation matters. The Company has established an accrual in the amount of $40.5 million, and made related payments of $50.1 million, with respect to certain of these matters for the year ended December 31, 2022, as discussed in Note 17. The Company expects to disburse payments during 2023 equal to the remainder of the established accrual. +Developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +The Company expects to meet its contractual obligations through its typical sources of liquidity in the normal course of business, such as cash from operating activities, and believes it has the financial resources to satisfy these contractual obligations. The Company had the following contractual obligations due by period at December 31, 2022: +(In millions) Total Less than +1 year 1-3 years 3-5 years More than +5 years +Long-term debt obligations (1) +$ 1,446.3 $ 489.4 $ 135.4 $ 234.7 $ 586.8 +Operating lease obligations +236.5 38.6 60.8 47.1 90.0 +Purchase obligations (2) +423.1 423.1 — — — +Pension (3) +— — — — — +Supplemental Executive Retirement Plan +44.9 3.9 8.3 8.8 23.9 +Municipal water improvements (3) +31.9 31.9 — — — +TCJA transition obligation +28.1 7.0 21.1 — — +Total (4) +$ 2,210.8 $ 993.9 $ 225.6 $ 290.6 $ 700.7 +(1) Includes principal and interest payments on the Company’s long-term debt. Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 31, 2022. Actual cash outflows may differ significantly due to changes in underlying interest rates. +(2) Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) Under the terms of a Consent Decree resolving certain civil and regulatory actions, the Company is obligated to contribute towards the costs of extending municipal water lines, developing a replacement wellfield and making certain improvements to Plainfield Township’s existing water treatment plant, all subject to an aggregate cap of $69.5 million. D uring 2022 and 2021, the Company made paymen ts of $15.0 and $12 .9 million towards the total cap, respectively. Due to the uncertainty of the timing and amounts related to the Company's other environmental remediation costs, they have been excluded from this table. See Note 17 to the Company's Consolidated Financial Statements for additional information. +(4) The total amount of unrecognized tax benefits on the consolidated balance sheet at December 31, 2022 is $9.0 million . At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Financing Arrangements +On October 21, 2021, the Company entered into a 2021 Replacement Facility Amendment and Reaffirmation Agreement (the “Amendment”) to the Company's Credit Facility (as amended and restated, the "Credit Agreement"). The Amendment amended and restated the Credit Agreement to, among other things: (i) provide for a term loan A facility (the “Term Facility”) in an aggregate principal amount of $200.0 million, which replaced the existing term loan A; (ii) provide for an increased revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”) with total commitments of $1.0 billion, an increase of $200.0 million from the existing Revolving Facility; and (iii) set the LIBOR floor to 0.000%, a decrease of 0.750%. The maturity date of the loans under the Senior Credit Facilities was extended to October 21, +30 +2026. The Amendment provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $2.0 billion unless certain specified conditions set forth in the amended senior credit facility are met. The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026. +On August 26, 2021, the Company issued $550.0 million aggregate principal debt amount of 4.000% senior notes due on August 15, 2029. Related interest payments are due semi-annually beginning February 15, 2022. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. The proceeds from the senior notes were used to extinguish the Company’s $250.0 million senior notes due on September 1, 2026 and $300.0 million senior notes due on May 15, 2025. +As of December 31, 2022, the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company’s debt at December 31, 2022 totaled $1,158.0 million, compared to $966.8 million at January 1, 2022. The Company expects to use the current borrowings to fund organic growth initiatives, reduce debt, pay dividends and for general corporate purposes. The increased debt position resulted from borrowings under the Revolving Facility to fund organic growth initiatives, pay dividends and for general corporate purposes. +Cash Flows +The following table summarizes cash flow activities: +Fiscal Year Ended +(In millions) December 31, +2022 January 1, +2022 +Net cash provided by (used in) operating activities (178.9) 86.8 +Net cash provided by (used in) investing activities 54.6 (437.3) +Net cash provided by (used in) financing activities 107.1 169.3 +Additions to property, plant and equipment (36.5) (17.6) +Depreciation and amortization 34.6 33.2 +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during 2022 was lower compared to 2021, due primarily to an increase in net working capital representing a use of cash of $274.4 million. Working capital balances were unfavorably impacted by an increase in inventories of $428.9 million, a decrease in accounts receivable of $84.5 million, and an increase in other operating assets of $21.1 million, partially offset by an increase in accounts payable of $62.6 million and an increase in other operating liabilities of $26.1 million. Operating cash flows included non-cash add back for the impairment of intangible assets of $428.7 million, depreciation and amortization expense adjustment of $34.6 million, stock-based compensation expense adjustment of $33.4 million, deferred income tax adjustment of $105.7 million, gain on sale of the Champion trademark of $90.0 million, environmental and other related costs, net of cash payments and recoveries received cash outflow of $23.0 million, and pension expense adjustment of $9.3 million. +Investing Activities +The Company made capital expenditures of $36.5 million and $17.6 million in years 2022 and 2021, respectively, for building improvements, eCommerce site enhancements, new retail stores, distribution operations improvements and information system enhancements. The current year activity includes additional investment in the Company’s China joint venture of $2.8 million and proceeds received from the sale of the Champion trademarks of $90.0 million. +Financing Activities +The current year debt activity includes net borrowings under the Revolving Facility of $200.0 million and $30.5 million in proceeds from company-owned life insurance policies. The Company paid $7.7 million and $14.1 million in 2022 and 2021, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans and received $1.4 million and $17.1 million in proceeds from the exercise of stock options in 2022 and 2021, respectively. The Company also repurchased $81.3 million and $39.6 million of its common stock during 2022 and 2021, respectively. The +31 +Company received $7.0 million and $4.8 million from noncontrolling owners of the Company’s China joint venture to support the growth of the joint venture in 2022 and 2021, respectively. +The Company declared cash dividends of $0.40 per share in each of 2022 and 2021. Dividends paid totaled $32.8 million and $33.5 million for 2022 and 2021 , respectively. A quarterly dividend of $0.10 per share was declared on February 8, 2023 to shareholders of record on April 3, 2023. +NEW ACCOUNTING STANDARDS +See Note 2 to the Company's Consolidated Financial Statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +The preparation of the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s Consolidated Financial Statements. Significant accounting policies are summarized in Note 1 to the Company's Consolidated Financial Statements. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and direct-to-consumer revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the purchase, shipment or delivery of branded products or to the customer. Direct-to-consumer includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the direct-to-consumer channel. +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the year ended December 31, 2022 related to the Company’s contract liabilities was nominal. +Inventory +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished product inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished product inventories in foreign countries and certain domestic finished product inventories. The average cost of inventory is used for finished product inventories of the Company’s direct-to- +32 +consumer business and Sweaty Betty ® inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Business Combinations +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" section below. Refer to Note 19 “Business Acquisitions” for additional discussion. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions such as a discount rate and expected future operating performance, which includes forecasted revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin and cost of capital, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company records an impairment charge equal to the excess of the recorded goodwill over the fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible assets are less than their carrying value. The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. In the fourth quarter of 2022, after completion of the annual impairment testing, the Company recorded a $48.4 million impairment charge for Sweaty Betty ® goodwill. The Company did not recognize any impairment charges for goodwill during years 2021 and 2020. In the fourth quarter of 2022, the Company recognized impairment charges of $191.0 million for the Sperry ® trade name and $189.3 million for the Sweaty Betty ® trade name. No impairment charges were recognized for the Company's intangible assets during 2021. In the fourth quarter of 2020, the Company recorded a $222.2 million impairment charge for the Sperry ® trade name. Refer to Note 4, “Goodwill and Other +33 +Intangibles” for additional discussion on the Sweaty Betty ® goodwill impairment and the Sweaty Betty ® and Sperry ® trade name impairments. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Refer to Note 17, “Litigation and Contingencies” for additional discussion on estimated environmental remediation costs. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters as described in Note 17 to the Company's Consolidated Financial Statements. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17 “Litigation and Contingencies”. +Retirement Benefits +The determination of the obligation and expense for retirement benefits depends upon the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans' expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 5.56% at December 31, 2022, compared to 3.09% at January 1, 2022. Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.87% and 6.75% for fiscal 2022 and 2021, respectively. This rate is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. The Company evaluates the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in the Company’s assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +34 +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +The Company intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on that amount of foreign unremitted earnings. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. The Company does not believe that there has been a material change in the nature of the Company’s primary market risk exposures, including the categories of market risk to which the Company is exposed and the particular markets that present the primary risk of loss to the Company. As of the date of this Annual Report on Form 10-K, the Company does not know of any material change in the near-term in the general nature of its primary market risk exposure. +Under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging , the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, the United Kingdom, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At December 31, 2022 and January 1, 2022, the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $334.2 million and $296.7 million, respectively, with maturities ranging up to 524 and 538 days, respectively. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations and comprehensive income. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. At December 31, 2022, a stronger U.S. dollar compared to certain foreign currencies decreased the value of these investments in net assets by $76.3 million from their value at January 1, 2022. At January 1, 2022, a stronger U.S. dollar compared to foreign currencies decreased the value of these investments in net assets by $20.0 million from their value at January 2, 2021. +35 +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on the Incremental Term Loan borrowings and any borrowings under the Revolving Facility. The Company’s total variable-rate debt was $615.0 million at December 31, 2022 and the Company held a forward-dated interest rate swap agreement, denominated in U.S. dollars that will effectively convert $176.2 million of this amount to fixed-rate debt. The interest rate swap derivative instrument is held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be a net asset of $6.1 million as of December 31, 2022. As of December 31, 2022, the weighted-average interest rate on the Company’s variable-rate debt, net of the impact of the interest rate swap, was 4.86%. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $4.4 million. The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +36 +Item 8. Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +38 +Consolidated Statements of Comprehensive Income (Loss) +39 +Consolidated Balance Sheets +40 +Consolidated Statements of Cash Flows +41 +Consolidated Statements of Stockholders' Equity +43 +Note 1. Summary of Significant Accounting Policies +45 +Note 2. New Accounting Standards +50 +Note 3. Earnings Per Share +50 +Note 4. Goodwill and Other Intangibles +51 +Note 5. Accounts Receivable +52 +Note 6. Revenue From Contracts With Customers +52 +Note 7. Inventories +54 +Note 8. Debt +54 +Note 9. Property, Plant and Equipment +56 +Note 10. Leases +56 +Note 11. Derivative Financial Instruments +56 +Note 12. Stock-Based Compensation +57 +Note 13. Retirement Plans +59 +Note 14. Income Taxes +62 +Note 15. Accumulated Other Comprehensive Income (Loss) +65 +Note 16. Fair Value Measurements +65 +Note 17. Litigation and Contingencies +66 +Note 18. Business Segments +68 +Note 19. Business Acquisition +71 +Note 20. Variable Interest Entities and Related Party Transactions +72 +Note 21. Assets and Liabilities Held for Sale +73 +Note 22. Subsequent Event +74 +Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +75 +37 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) 2022 2021 2020 +Revenue $ 2,684.8 $ 2,414.9 $ 1,791.1 +Cost of goods sold 1,614.4 1,385.0 1,055.5 +Gross profit 1,070.4 1,029.9 735.6 +Selling, general and administrative expenses 906.4 817.8 639.4 +Gain on sale of trademarks ( 90.0 ) — — +Impairment of goodwill and intangible assets 428.7 — 222.2 +Environmental and other related costs, net of recoveries 33.7 56.4 11.1 +Operating profit (loss) ( 208.4 ) 155.7 ( 137.1 ) +Other expenses: +Interest expense, net 47.3 37.4 43.6 +Debt extinguishment and other costs — 34.3 5.5 +Other expense (income), net ( 2.8 ) 3.7 ( 2.1 ) +Total other expenses 44.5 75.4 47.0 +Earnings (loss) before income taxes ( 252.9 ) 80.3 ( 184.1 ) +Income tax expense (benefit) ( 63.8 ) 13.3 ( 45.5 ) +Net earnings (loss) ( 189.1 ) 67.0 ( 138.6 ) +Less: net loss attributable to noncontrolling interests ( 0.8 ) ( 1.6 ) ( 1.7 ) +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 188.3 ) $ 68.6 $ ( 136.9 ) +Net earnings (loss) per share (see Note 3): +Basic $ ( 2.37 ) $ 0.82 $ ( 1.70 ) +Diluted $ ( 2.37 ) $ 0.81 $ ( 1.70 ) +See accompanying notes to consolidated financial statements. +38 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income (Loss) +Fiscal Year +(In millions) 2022 2021 2020 +Net earnings (loss) $ ( 189.1 ) $ 67.0 $ ( 138.6 ) +Other comprehensive income (loss) net of tax: +Foreign currency translation adjustments ( 76.8 ) ( 20.0 ) 10.6 +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $ 7.9 , $ 3.0 and $( 5.2 ) +25.4 7.7 ( 17.6 ) +Reclassification adjustments included in net earnings (loss), net of taxes of $( 4.7 ), $ 1.4 and $ 0.4 +( 14.6 ) 3.7 3.1 +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $ 6.3 , $ 7.8 and $( 8.0 ) +22.6 29.5 ( 30.0 ) +Amortization of prior actuarial losses, net of taxes of $ 2.4 , $ 3.0 and $ 1.4 +8.9 10.8 5.2 +Other comprehensive income (loss) ( 34.5 ) 31.7 ( 28.7 ) +Less: other comprehensive income (loss) attributable to noncontrolling interests ( 0.5 ) — ( 0.2 ) +Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. ( 34.0 ) 31.7 ( 28.5 ) +Comprehensive income (loss) ( 223.6 ) 98.7 ( 167.3 ) +Less: comprehensive loss attributable to noncontrolling interests ( 1.3 ) ( 1.6 ) ( 1.9 ) +Comprehensive income (loss) attributable to Wolverine World Wide, Inc. $ ( 222.3 ) $ 100.3 $ ( 165.4 ) +See accompanying notes to consolidated financial statements. +39 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) December 31, +2022 January 1, +2022 +ASSETS +Current assets: +Cash and cash equivalents $ 131.5 $ 161.7 +Accounts receivable, less allowances of $ 11.1 and $ 28.3 +241.7 319.6 +Finished products, net 743.2 354.1 +Raw materials and work-in-process, net 2.0 11.4 +Total inventories 745.2 365.5 +Prepaid expenses and other current assets 79.0 56.9 +Current assets held for sale 67.9 — +Total current assets 1,265.3 903.7 +Property, plant and equipment, net of accumulated depreciation of $ 236.1 and $ 219.1 +136.2 129.0 +Lease right-of-use assets +174.7 138.2 +Goodwill 485.0 556.6 +Indefinite-lived intangibles 274.0 718.1 +Amortizable intangibles, net 67.4 74.6 +Deferred income taxes 24.5 1.8 +Other assets 65.6 64.4 +Total assets $ 2,492.7 $ 2,586.4 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 272.2 $ 222.1 +Accrued salaries and wages 32.3 41.7 +Other accrued liabilities 322.9 222.5 +Lease liabilities 39.1 38.3 +Current maturities of long-term debt 10.0 10.0 +Borrowings under revolving credit agreements 425.0 225.0 +Current liabilities held for sale 8.8 — +Total current liabilities 1,110.3 759.6 +Long-term debt, less current maturities +723.0 731.8 +Accrued pension liabilities +72.9 107.4 +Deferred income taxes +35.3 118.9 +Lease liabilities, noncurrent +153.6 118.2 +Other liabilities +58.6 106.1 +Stockholders’ equity +Common stock – par value $ 1 , authorized 320,000,000 shares; 112,202,078 , and 111,632,094 shares issued +112.2 111.6 +Additional paid-in capital 325.4 298.9 +Retained earnings 907.2 1,128.2 +Accumulated other comprehensive loss ( 132.9 ) ( 98.9 ) +Cost of shares in treasury; 33,413,204 , and 29,604,013 shares +( 891.3 ) ( 810.2 ) +Total Wolverine World Wide, Inc. stockholders’ equity 320.6 629.6 +Noncontrolling interest +18.4 14.8 +Total stockholders’ equity 339.0 644.4 +Total liabilities and stockholders’ equity $ 2,492.7 $ 2,586.4 +See accompanying notes to consolidated financial statements. +40 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows +Fiscal Year +(In millions) +2022 2021 2020 +OPERATING ACTIVITIES +Net earnings (loss) $ ( 189.1 ) $ 67.0 $ ( 138.6 ) +Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: +Depreciation and amortization +34.6 33.2 32.8 +Deferred income taxes +( 105.7 ) ( 14.7 ) ( 56.9 ) +Stock-based compensation expense +33.4 38.1 28.9 +Pension and SERP expense +9.3 14.0 8.5 +Debt extinguishment, interest rate swap termination, and other costs — 5.8 5.5 +Impairment of goodwill and intangible assets 428.7 — 222.2 +Environmental and other related costs, net of cash payments and recoveries received ( 23.0 ) 33.7 31.5 +Gain on sale of trademarks ( 90.0 ) — — +Other +( 2.7 ) ( 1.9 ) ( 12.7 ) +Changes in operating assets and liabilities: +Accounts receivable +84.5 ( 49.2 ) 64.8 +Inventories +( 428.9 ) ( 77.2 ) 107.2 +Other operating assets +( 21.1 ) ( 2.3 ) 7.4 +Accounts payable +62.6 23.0 ( 18.9 ) +Income taxes +2.4 1.6 ( 0.5 ) +Other operating liabilities +26.1 15.7 27.9 +Net cash provided by (used in) operating activities ( 178.9 ) 86.8 309.1 +INVESTING ACTIVITIES +Business acquisition, net of cash acquired +— ( 417.4 ) ( 5.5 ) +Additions to property, plant and equipment ( 36.5 ) ( 17.6 ) ( 10.3 ) +Investment in joint ventures +( 2.8 ) — ( 3.5 ) +Proceeds from sale of trademarks 90.0 — — +Proceeds from company-owned life insurance policies — — 26.8 +Other +3.9 ( 2.3 ) ( 1.4 ) +Net cash provided by (used in) investing activities 54.6 ( 437.3 ) 6.1 +FINANCING ACTIVITIES +Payments under revolving credit agreements ( 740.0 ) ( 435.0 ) ( 898.0 ) +Borrowings under revolving credit agreements 940.0 660.0 538.0 +Proceeds from company-owned life insurance policies 30.5 — — +Borrowings of long-term debt +— 750.0 471.0 +Payments on long-term debt +( 10.0 ) ( 730.0 ) ( 183.5 ) +Payments of debt issuance and debt extinguishment costs +— ( 10.4 ) ( 6.4 ) +Termination of interest rate swap — — ( 7.3 ) +Cash dividends paid +( 32.8 ) ( 33.5 ) ( 33.6 ) +Purchase of common stock for treasury +( 81.3 ) ( 39.6 ) ( 21.0 ) +Employee taxes paid under stock-based compensation plans +( 7.7 ) ( 14.1 ) ( 24.8 ) +Proceeds from the exercise of stock options +1.4 17.1 9.8 +Contributions from noncontrolling interests +7.0 4.8 1.8 +Net cash provided by (used in) financing activities 107.1 169.3 ( 154.0 ) +Effect of foreign exchange rate changes +( 9.0 ) ( 4.5 ) 5.6 +Increase (decrease) in cash and cash equivalents ( 26.2 ) ( 185.7 ) 166.8 +Cash and cash equivalents at beginning of the year +161.7 347.4 180.6 +Cash and cash equivalents at end of the year +$ 135.5 $ 161.7 $ 347.4 +See accompanying notes to consolidated financial statements. +41 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows – continued +Fiscal Year +(In millions) +2022 2021 2020 +OTHER CASH FLOW INFORMATION +Interest paid +$ 43.0 $ 34.6 $ 41.4 +Net income taxes paid +44.3 27.8 8.6 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid 3.3 3.2 0.9 +See accompanying notes to consolidated financial statements. +Cash and cash equivalents at the end of the year in the Consolidated Statements of Cash Flows includes $ 4.0 million of Wolverine Leathers business related cash and cash equivalents that are classified as held for sale as of December 31, 2022 that are not included in cash and cash equivalents in the Consolidated Balance Sheets. +42 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at December 28, 2019 $ 108.3 $ 233.4 $ 1,263.3 $ ( 102.1 ) $ ( 736.2 ) $ 11.7 $ 778.4 +Net loss ( 136.9 ) ( 1.7 ) ( 138.6 ) +Other comprehensive loss ( 28.5 ) ( 0.2 ) ( 28.7 ) +Shares forfeited, net of shares issued under stock incentive plans ( 1,497,478 shares) +1.5 ( 19.0 ) ( 17.5 ) +Shares issued for stock options exercised, net ( 600,041 shares) +0.6 9.3 9.9 +Stock-based compensation expense +28.9 28.9 +Cash dividends declared ($ 0.40 per share) +( 33.1 ) ( 33.1 ) +Issuance of treasury shares ( 5,479 shares) +— 0.2 0.2 +Purchase of common stock for treasury ( 877,624 shares) +( 21.0 ) ( 21.0 ) +Purchases of shares under stock-based compensation plans ( 231,617 shares) +( 7.3 ) ( 7.3 ) +Capital contribution from noncontrolling interests 1.8 1.8 +Balance at January 2, 2021 $ 110.4 $ 252.6 $ 1,093.3 $ ( 130.6 ) $ ( 764.3 ) $ 11.6 $ 573.0 +Net earnings (loss) 68.6 ( 1.6 ) 67.0 +Other comprehensive income 31.7 — 31.7 +Shares issues, net of shares forfeited under stock incentive plans ( 431,180 shares) +0.4 ( 8.2 ) ( 7.8 ) +Shares issued for stock options exercised, net ( 774,145 shares) +0.8 16.4 17.2 +Stock-based compensation expense +38.1 38.1 +Cash dividends declared ($ 0.40 per share) +( 33.7 ) ( 33.7 ) +Issuance of treasury shares ( 4,005 shares) +— 0.1 0.1 +Purchase of common stock for treasury ( 1,150,721 shares) +( 39.6 ) ( 39.6 ) +Purchases of shares under stock-based compensation plans ( 172,023 shares) +( 6.4 ) ( 6.4 ) +Capital contribution from noncontrolling interests 4.8 4.8 +Balance at January 1, 2022 $ 111.6 $ 298.9 $ 1,128.2 $ ( 98.9 ) $ ( 810.2 ) $ 14.8 $ 644.4 +See accompanying notes to consolidated financial statements. +43 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at January 1, 2022 $ 111.6 $ 298.9 $ 1,128.2 $ ( 98.9 ) $ ( 810.2 ) $ 14.8 $ 644.4 +Net loss ( 188.3 ) ( 0.8 ) ( 189.1 ) +Other comprehensive loss ( 34.0 ) ( 0.5 ) ( 34.5 ) +Shares issued, net of shares forfeited under stock incentive plans ( 495,502 shares) +0.5 ( 8.2 ) ( 7.7 ) +Shares issued for stock options exercised, net ( 74,482 shares) +0.1 1.3 1.4 +Stock-based compensation expense +33.4 33.4 +Cash dividends declared ($ 0.40 per share) +( 32.7 ) ( 32.7 ) +Issuance of treasury shares ( 5,973 shares) +— 0.2 0.2 +Purchase of common stock for treasury ( 3,815,164 shares) +( 81.3 ) ( 81.3 ) +Capital contribution from noncontrolling interests 7.0 7.0 +Other ( 2.1 ) ( 2.1 ) +Balance at December 31, 2022 $ 112.2 $ 325.4 $ 907.2 $ ( 132.9 ) $ ( 891.3 ) $ 18.4 $ 339.0 +See accompanying notes to consolidated financial statements. +44 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years 2022, 2021 and 2020 +1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids’ footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Keds ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® , Sweaty Betty ® and Wolverine ® . The Company’s products are marketed worldwide through owned operations, through licensing and distribution arrangements with third parties, and through joint ventures. The Company also operates retail stores and eCommerce sites to market both its own brands and branded footwear and apparel from other manufacturers, and has a leathers division that markets Wolverine Performance Leathers™ . +On June 30, 2022, the Company sold the Champion trademarks for footwear in the United States and Canada to HanesBrand Inc. for $ 90.0 million in cash. The Company recorded a gain of $ 90.0 million associated with the transaction. +On August 2, 2021, the Company completed the acquisition of Lady of Leisure InvestCo Limited (the “Acquired Company”) for $ 417.4 million, net of acquired cash of $ 7.4 million. The Acquired Company owns the Sweaty Betty ® brand and activewear business, a premium women’s activewear brand. See Note 19 for further discussion. +Principles of Consolidation and Basis of Presentation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”) and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. +During the fourth quarter of 2022, the Company announced changes to its reportable segments as a result of changes in how its Chief Operating Decision Maker, the Company's Chief Executive Officer, allocates resources to and assess performance of the Company's operating segments. All prior period disclosures have been retrospectively adjusted to reflect the new reportable segments. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2022 and 2021 each had 52 weeks, and fiscal year 2020 had 53 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers . Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations and recognizes revenue upon completion of the performance obligation. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consists of wholesale revenue and direct-to-consumer revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products to the customer. Direct-to-consumer includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue is recognized at time of sale. The shipment of goods, or point of purchase for retail store sales, was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. +45 +Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the goods transfers to the customer as fulfillment activities. +Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the direct-to-consumer channel. The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract liabilities) on the consolidated balance sheets. Generally, billing occurs commensurate to revenue recognition resulting in contract assets. See Note 6 for additional information. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 220.7 million, $ 195.4 million and $ 135.6 million for fiscal years 2022, 2021 and 2020, respectively. Prepaid advertising totaled $ 2.7 million and $ 3.6 million as of December 31, 2022 and January 1, 2022, respectively. +Earnings Per Share +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates fair value. +Allowance for Credit Losses +The Company maintains an allowance for credit losses on accounts receivable that represents estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions. +Inventories +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished product inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished product inventories in foreign countries and certain domestic finished product inventories. The average cost of inventory is used for finished product inventories of the Company’s direct-to-consumer business and Sweaty Betty ® inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +46 +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for buildings, leasehold improvements, furniture and fixtures, material handling systems, equipment and computer hardware and software. Normal repairs and maintenance are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings, from 5 to 15 years for leasehold improvements, from 3 to 10 years for furniture, fixtures and equipment and from 3 to 5 years for software. +Leases +The Company’s leases consist primarily of corporate offices, retail stores, distribution centers, showrooms, vehicles and office equipment. The Company leases assets in the normal course of business to meet its current and future needs while providing flexibility to its operations. The Company enters into contracts with third parties to lease specifically identified assets. Most of the Company’s leases have contractually specified renewal periods. Most retail store leases have early termination clauses that the Company can elect if stipulated sales amounts are not achieved. The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised. +Under FASB ASC Topic 842, Leases , the Company has elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all of its leases. In addition, the Company has elected to account for multiple lease components as a single lease component. The Company’s leases may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease. The Company recognizes variable lease payments when the amounts are incurred and determinable. The Company has elected to account for leases of less than one year as short-term leases and accordingly does not recognize a right-of-use asset or lease liability for these leases. The Company recognizes rent expense on a straight-line basis over the lease term. +The Company subleases certain portions of leased offices and distribution centers that exceed the Company’s current operational needs. Since the Company utilizes the majority of the leased space and retains the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the term of the sublease and is recognized in other expense (income), net on the consolidated statements of operations. +The Company recognizes a lease liability in current and noncurrent liabilities equal to the present value of the fixed future lease payments using an incremental borrowing rate as of the commencement date of each lease. The incremental borrowing rate is based on an interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments. The Company also recognizes a right-of-use asset, which is equal to the lease liability as of December 31, 2022 adjusted for the remaining balance of accrued rent and unamortized lease incentives. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. +Derivatives +The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. Refer to Note 11 for further discussion regarding the Company's derivative arrangements and derivative accounting. +Equity Method Investments +Equity method investments where the Company owns a non-controlling interest, but exercises significant influence, are accounted for under the equity method of accounting. The Company's original cost of investment is adjusted for the Company's share of equity in the earnings of the equity investee. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying +47 +amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. The Company includes assumptions such as a discount rate and expected future operating performance, which includes forecasted revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin and cost of capital, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value. Goodwill and indefinite-lived intangibles are considered impaired if the recorded value exceeds the fair value. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible asset are less than their carrying value. The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. See Note 4 for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +Fair Value of Financial Instruments +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters described in Note 17. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17. +48 +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 13 for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Stock Based Compensation +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. All stock-based awards are accounted for based on their respective grant date fair values. Compensation cost for all awards expected to vest is recognized over the vesting period, including accelerated recognition for retirement-eligible employees. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. The Company includes Global Intangible Low Tax Income ("GILTI") as a current period tax expense when incurred. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benef it is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. T he Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2022, 2021 and 2020. +Business Combination +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible +49 +assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" accounting policy. For further discussion, refer to Note 19. +2. NEW ACCOUNTING STANDARDS +The FASB has issued the following Accounting Standards Update (“ASU”) that the Company has not yet adopted. The following is a summary of the new standard. +Standard Description Effect on the Financial Statements or Other Significant Matters +ASU 2020-04, Reference Rate Reform (Topic 848); Facilitation of the Effects of Reference Rate Reform on Financial Reporting (as amended by ASU 2021-01 and ASU 2022-06) +Provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for the Company’s borrowing instruments under the amended senior credit facility, which use LIBOR as a reference rate, and is available for adoption effective immediately. but was previously only available through December 31, 2022. In December 2022, in ASU 2022-06, the FASB deferred the expiration date and extended the relief in Topic 848 beyond the cessation date of USD LIBOR. The new accounting rules must be adopted by December 31, 2024. +The Company is evaluating the impact of the new standard on its Consolidated Financial Statements. +3. EARNINGS PER SHARE +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) 2022 2021 2020 +Numerator: +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 188.3 ) $ 68.6 $ ( 136.9 ) +Less: net earnings attributed to participating share-based awards +( 0.6 ) ( 1.1 ) ( 0.8 ) +Net earnings (loss) used to calculate earnings per share $ ( 188.9 ) $ 67.5 $ ( 137.7 ) +Denominator: +Weighted average shares outstanding +79.7 82.4 81.8 +Adjustment for unvested restricted common stock +— ( 0.1 ) ( 0.8 ) +Shares used to calculate basic earnings per share +79.7 82.3 81.0 +Effect of dilutive share-based awards +— 1.0 — +Shares used to calculate diluted earnings per share +79.7 83.3 81.0 +Net earnings (loss) per share: +Basic +$ ( 2.37 ) $ 0.82 $ ( 1.70 ) +Diluted +$ ( 2.37 ) $ 0.81 $ ( 1.70 ) +For fiscal years 2022, 2021 and 2020, 1,434,081 , 605,774 and 1,179,088 outstanding stock options, respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 31, 2022 or January 1, 2022. The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company repurchased $ 81.3 million, $ 39.6 million and $ 21.0 million of Company common stock in fiscal years 2022, 2021 and 2020, respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 7.7 million, $ 14.1 million and $ 24.8 million of Company common stock in fiscal years 2022, 2021 and 2020, respectively, in connection with employee transactions related to stock incentive plans. +50 +On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to amounts remaining under the previous repurchase program. The annual amount of stock repurchases is restricted under the terms of the Company's Credit Agreement. +4. GOODWILL AND OTHER INTANGIBLE ASSETS +The changes in the carrying amount of goodwill are as follows: +Fiscal Year +(In millions) 2022 2021 +Goodwill balance at beginning of the year $ 556.6 $ 442.4 +Acquisition of a business (see Note 19) — 118.9 +Impairment ( 48.4 ) — +Foreign currency translation effects ( 23.2 ) ( 4.7 ) +Goodwill balance at end of the year $ 485.0 $ 556.6 +In the fourth quarter of fiscal 2022, after completion of its annual impairment testing, the Company recognized a $ 48.4 million goodwill impairment charge to the Sweaty Betty ® reporting unit. The impairment was due to an increase in the discount rates used in the valuation. The Company did not recognize any goodwill impairment charges during fiscal years 2021 and 2020. +The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 274.0 million and $ 718.1 million as of December 31, 2022 and January 1, 2022, respectively. In the fourth quarter of fiscal 2022, after the completion of the annual impairment testing, the Company recognized impairment charges of $ 191.0 million and $ 189.3 million to the Sperry ® and Sweaty Betty ® trade names, respectively. The impairment charge for the Sperry ® trade name was due to reductions in future cash flow assumptions mainly due to decreases in anticipated future performance and an increase in the discount rate used in the valuation. The impairment charge for the Sweaty Betty ® trade name resulted from reductions in future cash flow assumptions due to an increase in the discount rate used in the valuation. In the fourth quarter of fiscal 2020, after the completion of the annual impairment testing, the Company recognized a $ 222.2 million impairment charge for the Sperry ® trade name. +The Sperry ® and Sweaty Betty ® trade names were valued using the income approach, specifically the multi-period excess earnings method. The Sweaty Betty ® reporting unit fair value was estimated using both income-based and market-based valuation methods. T he key assumptions used in the valuations were revenue growth, EBITDA margin, and the discount rate. Although the Company believes the estimates and assumptions used in the valuation were appropriate, it is possible assumptions could change in future periods. The risk of future impairment to the Sperry ® and Sweaty Betty ® trade names and Sweaty Betty ® goodwill depend on key assumptions used in the determination of the trade name's and Sweaty Betty ® reporting unit's fair value, such as revenue growth, EBITDA margin, discount rate, and assumed tax rate, or macroeconomic conditions that could adversely affect the value of the Company's Sperry ® and Sweaty Betty ® trade names and Sweaty Betty ® reporting unit. A future impairment charge of the Sperry ® trade name or Sweaty Betty ® trade name and Sweaty Betty ® reporting unit goodwill could have an adverse material effect on the Company's consolidated financial results. The carrying value of the Company’s Sperry ® and Sweaty Betty ® trade names indefinite-lived intangible assets was $ 105.3 million and $ 94.1 million, respectively, as of December 31, 2022. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows: +December 31, 2022 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 118.4 $ 55.2 $ 63.2 10 +Other 22.2 18.0 4.2 3 +Total $ 140.6 $ 73.2 $ 67.4 +51 +January 1, 2022 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 119.9 $ 49.1 $ 70.8 11 +Other 20.3 16.5 3.8 3 +Total $ 140.2 $ 65.6 $ 74.6 +Amortization expense for these amortizable intangible assets was $ 7.9 million, $ 8.4 million and $ 7.1 million for fiscal years 2022, 2021 and 2020, respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 31, 2022 is as follows: +(In millions) 2023 2024 2025 2026 2027 +Amortization expense $ 7.6 $ 7.3 $ 7.0 $ 6.7 $ 6.4 +5. ACCOUNTS RECEIVABLE +The Company and certain of its subsidiaries sell, on a continuous basis without recourse, their trade receivables to Rockford ARS, LLC (“Rockford ARS”), a wholly-owned bankruptcy-remote subsidiary of the Company. On December 7, 2022, Rockford ARS entered into a receivables purchase agreement (“RPA”) to sell up to $ 175.0 million of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” in the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Rockford ARS has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures on December 5, 2025 each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables. +The proceeds of the RPA are classified as operating activities in the Company's Consolidated Statement of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchasers. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection. Total receivables sold under the RPA were $ 218.2 million and total cash collections under the RPA were $ 75.5 million in fiscal year 2022. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. +As of the fiscal year ended December 31, 2022, the amount sold to the Purchasers was $ 142.7 million, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Rockford ARS maintains a certain level of unsold receivables, which was $ 70.0 million as of the fiscal year ended December 31, 2022. +6. REVENUE FROM CONTRACTS WITH CUSTOMERS +Revenue Recognition and Performance Obligations +The Company provides disaggregated revenue for the wholesale and direct-to-consumer sales channels, which are reconciled to the Company’s reportable segments. The wholesale channel includes royalty revenues, which operates in a similar manner as +52 +other wholesale revenues due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation. +Fiscal Year +(in millions) 2022 2021 2020 +Active Group: +Wholesale $ 1,086.6 $ 930.7 $ 682.9 +Direct-to-consumer 483.6 388.9 226.4 +Total 1,570.2 1,319.6 909.3 +Work Group: +Wholesale 532.0 487.3 372.0 +Direct-to-consumer 58.5 61.5 53.4 +Total 590.5 548.8 425.4 +Lifestyle Group: +Wholesale 304.0 305.6 263.4 +Direct-to-consumer 143.5 171.4 143.6 +Total 447.5 477.0 407.0 +Other: +Wholesale 70.4 63.6 45.3 +Direct-to-consumer 6.2 5.9 4.1 +Total 76.6 69.5 49.4 +Total revenue $ 2,684.8 $ 2,414.9 $ 1,791.1 +The Company has agreements to license symbolic intellectual property with minimum guarantees or fixed consideration. The Company is due $ 11.1 million of remaining fixed transaction price under its license agreements as of December 31, 2022, which it expects to recognize per the terms of its contracts over the course of time through December 2026 . The Company has elected to omit the remaining variable consideration under its license agreements given the Company recognizes revenue equal to what it has the right to invoice and that amount corresponds directly with the value to the customer of the Company’s performance to date. +Reserves for Variable Consideration +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during fiscal years 2022 and 2021 related to the Company’s contract liabilities was nominal. +The Company’s contract balances are as follows: +(In millions) December 31, +2022 January 1, +2022 +Product returns reserve $ 15.3 $ 16.6 +Customer markdowns reserve 2.6 2.3 +Other sales incentives reserve 3.3 3.4 +Customer rebates liability 19.8 17.0 +Customer advances liability 9.1 6.8 +The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from initial estimates. +53 +If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. +Product Returns +Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and an offsetting increase to other accrued liabilities on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. The estimated cost of inventory for product returns is recorded in prepaid expenses and other current assets on the consolidated balance sheets. The estimated cost of inventory for product returns was $ 6.7 million and $ 6.1 million at December 31, 2022 and January 1, 2022, respectively. +Customer Markdowns +Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. +Other Sales Incentives +The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. +Customer Rebates +The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. +Customer Advances +The Company recognizes a liability for amounts received from customers before revenue is recognized. Customer advances are recognized in other accrued liabilities on the consolidated balance sheets. +7. INVENTORIES +The Company used the LIFO method to value inventories of $ 109.8 million and $ 42.0 million at December 31, 2022 and January 1, 2022, respectively. During fiscal years 2022 and 2021, changes in the LIFO reserve increased cost of goods sold by $ 3.0 million and $ 0.5 million, respectively. If the FIFO method had been used, inventories would have been $ 11.0 million and $ 8.0 million higher than reported at December 31, 2022 and January 1, 2022, respectively. +8. DEBT +Total debt consists of the following obligations: +(In millions) December 31, +2022 January 1, +2022 +Term Facility, due October 21, 2026 $ 190.0 $ 200.0 +Senior Notes, 4.000% interest, due August 15, 2029 550.0 550.0 +Borrowings under revolving credit agreements 425.0 225.0 +Unamortized deferred financing costs ( 7.0 ) ( 8.2 ) +Total debt $ 1,158.0 $ 966.8 +On October 21, 2021, the Company entered into a 2021 Replacement Facility Amendment and Reaffirmation Agreement (the “Amendment”) of its credit facility (as amended and restated, the "Credit Agreement"). The Amendment amended and restated the prior credit agreement to, among other things: (i) provide for a term loan A facility (the “Term Facility”) in an aggregate principal amount of $ 200.0 million, which replaced the existing term loan A; (ii) provide for an increased revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”) with total commitments of $ 1.0 billion, an increase of $ 200.0 million from the existing Revolving Facility; and (iii) set the LIBOR floor to 0.000 %, a +54 +decrease of 0.750% from the existing Senior Credit Facilities. The maturity date of the loans under the Senior Credit Facilities was extended to October 21, 2026. The Amendment provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. +The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026. The scheduled principal payments due under the Term Facility over the next 12 months total $ 10.0 million as of December 31, 2022 and are recorded as current maturities of long-term debt on the consolidated balance sheets. +The Revolving Facility allows the Company to borrow up to an aggregate amount of $ 1.0 billion. The Revolving Facility also includes a $ 100.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Facility of $ 5.7 million and $ 5.8 million as of December 31, 2022 and January 1, 2022, respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Facility. +The interest rates applicable to amounts outstanding under Term Facility and to U.S. dollar denominated amounts outstanding under the Revolving Facility are, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125 % to 1.000 %, or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125 % to 2.000 % (all capitalized terms used in this sentence are as defined in the Credit Agreement). At December 31, 2022, the Term Facility and the Revolving Facility had a weighted-average interest rate of 4.86 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Senior Credit Facilities also contain certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Senior Credit Facilities require compliance with the following financial covenants: a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Senior Credit Facilities). As of December 31, 2022, the Company was in compliance with all covenants and performance ratios under the Senior Credit Facilities. +On August 26, 2021, the Company issued $ 550.0 million aggregate principal debt amount of 4.000 % senior notes due on August 15, 2029. Related interest payments are due semi-annually beginning February 15, 2022. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. The proceeds from the senior notes were used to extinguish the Company’s $ 250.0 million senior notes due on September 1, 2026 and $ 300.0 million senior notes due on May 15, 2025. The Company incurred $ 34.0 million of debt extinguishment and other costs in connection with the extinguishment of the senior notes, of which $ 28.4 million is related to redemption premiums and $ 5.6 million is related to the write-off of capitalized financing fees. +The Company has a foreign revolving credit facility with aggregate available borrowing s of $ 2.0 million that are un committed and, therefore, each borrowing against the facility is subject to approval by the lender. There were no borrowings against this facility as of December 31, 2022 and January 1, 2022. +The Company included in interest expense the amortization of deferred financing costs of $ 2.0 million, $ 2.3 million, and $ 2.7 million in fiscal years 2022, 2021 and 2020, respectively. +Annual maturities of debt for the fiscal years subsequent to December 31, 2022 are as follows: +(In millions) 2023 2024 2025 2026 2027 Thereafter +Annual maturities of debt +$ 435.0 $ 10.0 $ 10.0 $ 160.0 $ — $ 550.0 +55 +9. PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) December 31, +2022 January 1, 2022 +Land $ 3.9 $ 3.9 +Buildings and leasehold improvements 121.8 122.2 +Furniture, fixtures and equipment 170.2 144.7 +Software 76.4 77.3 +Gross cost 372.3 348.1 +Less: accumulated depreciation 236.1 219.1 +Property, plant and equipment, net $ 136.2 $ 129.0 +Depreciation expense was $ 26.7 million, $ 24.8 million and $ 25.7 million for fiscal years 2022, 2021 and 2020, respectively. +10. LEASES +The following is a summary of the Company’s lease cost. +Fiscal Year +(In millions) 2022 2021 +Operating lease cost $ 36.0 $ 34.5 +Variable lease cost 14.5 12.3 +Short-term lease cost 3.1 1.3 +Sublease income ( 8.3 ) ( 6.5 ) +Total lease cost $ 45.3 $ 41.6 +The following is a summary of the Company’s supplemental cash flow information related to leases. +Fiscal Year +(In millions) 2022 2021 +Cash paid for operating lease liabilities $ 39.5 $ 38.5 +Operating lease assets obtained in exchange for lease liabilities 72.5 14.6 +The weighted-average discount rate for operating leases as of December 31, 2022 is 5.1 %. The weighted-average remaining lease term for operating leases as of December 31, 2022 is 8.2 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 31, 2022 are as follows: +(In millions) Operating Leases +2023 $ 38.6 +2024 33.1 +2025 27.7 +2026 24.8 +2027 22.3 +Thereafter 90.0 +Total future payments 236.5 +Less: imputed interest 43.8 +Recognized lease liability $ 192.7 +The Company did not enter into any real estate leases with commencement dates subsequent to December 31, 2022. +11. DERIVATIVE FINANCIAL INSTRUMENTS +The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of +56 +business. These foreign currency forward exchange hedge contracts extended out to a maximum of 524 days and 538 days as of December 31, 2022 and January 1, 2022, respectively. If, in the future, the foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) within stockholders’ equity. During fiscal 2020, the Company reclassified $ 0.6 million to other income for foreign currency derivatives that were no longer deemed highly effective. +The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has an interest rate swap arrangement, which unless otherwise terminated, will mature on May 30, 2025 . This agreement, which exchanges floating rate interest payments for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts, has been designated as a cash flow hedge of the underlying debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap arrangement is recognized as interest expense, net. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swap and the variable rate borrowing, as well as its risk management objective and strategy for undertaking the hedge transactions. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the inception of the hedge, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. +The Company had a cross currency swap to minimize the impact of exchange rate fluctuations which matured on September 1, 2021 . Changes in fair value related to movements in the foreign currency exchange spot rate were recorded in accumulated other comprehensive income (loss), offsetting the currency translation adjustment related to the underlying net investment that was also recorded in accumulated other comprehensive income (loss). All other changes in fair value were recorded in interest expense. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) December 31, +2022 January 1, +2022 +Foreign exchange hedge contracts $ 334.2 $ 296.7 +Interest rate swap 176.2 311.3 +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) December 31, +2022 January 1, +2022 +Financial assets: +Foreign exchange hedge contracts $ 7.5 $ 5.9 +Interest rate swap 6.1 — +Financial liabilities: +Foreign exchange hedge contracts $ ( 1.3 ) $ ( 1.0 ) +Interest rate swap — ( 0.1 ) +Foreign exchange hedge contract financial assets are recorded to prepaid expenses and other current assets and financial liabilities are recorded to other accrued liabilities on the consolidated balance sheets. Interest rate swap financial assets are recorded to other assets and financial liabilities are recorded to other liabilities on the consolidated balance sheets. +12. STOCK-BASED COMPENSATION +The Company recognized stock-based compensation expense of $ 33.4 million, $ 38.1 million and $ 28.9 million and related income tax benefits of $ 6.5 million, $ 7.5 million and $ 5.6 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2022, 2021 and 2020, respectively. +As of December 31, 2022, the Company had 5,543,811 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options +57 +granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment. These restrictions typically lapse over a three - to four- year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement, death and disability, and upon a change in control of the Company. Awards issued to employees that meet the specified retirement age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +Restricted Awards and Performance Awards +A summary of the unvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards Weighted- +Average +Grant Date +Fair Value Performance +Awards Weighted- +Average +Grant Date +Fair Value +Unvested at December 28, 2019 1,618,916 $ 27.36 1,127,102 $ 31.94 +Granted 1,416,117 22.59 455,207 34.00 +Vested ( 1,122,811 ) 22.07 ( 451,334 ) 23.51 +Forfeited ( 268,205 ) 29.67 ( 125,653 ) 35.91 +Unvested at January 2, 2021 1,644,017 $ 26.39 1,005,322 $ 35.25 +Granted 654,898 34.64 630,996 38.02 +Vested ( 981,681 ) 22.78 ( 181,657 ) 35.03 +Forfeited ( 109,234 ) 32.75 ( 690,246 ) 35.71 +Unvested at January 1, 2022 1,208,000 $ 33.62 764,415 $ 35.69 +Granted 980,456 25.86 437,253 27.40 +Vested ( 452,448 ) 33.37 ( 343,290 ) 37.06 +Forfeited ( 219,530 ) 30.05 ( 83,724 ) 27.31 +Unvested at December 31, 2022 1,516,478 $ 28.95 774,654 $ 34.14 +As of December 31, 2022, there was $ 19.4 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended December 31, 2022 was $ 10.9 million. As of January 1, 2022, there was $ 19.8 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended January 1, 2022 was $ 34.8 million. As of January 2, 2021, there was $ 18.5 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Awards vested during the year ended January 2, 2021 was $ 35.0 million. +As of December 31, 2022, there was $ 10.8 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Performance Awards vested during the year ended December 31, 2022 was $ 9.3 million. As of January 1, 2022, there was $ 16.1 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.4 years. The total fair value of Performance Aw ards vested during the year ended January 1, 2022 was $ 6.2 million. As of January 2, 2021, there was $ 1.4 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weig hted-average period of 1.4 years. The total fair value of Performance Awards vested during the year ended January 2, 2021 was $ 28.0 million. +58 +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $ 8.46 , $ 11.14 and $ 8.20 per share for fiscal years 2022, 2021 and 2020, respectively. +A summary of the stock option transactions is as follows: +Shares Under Option Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at December 28, 2019 4,033,107 $ 21.41 4.4 $ 49.8 +Granted 28,171 32.85 +Exercised ( 788,883 ) 18.39 +Canceled ( 12,990 ) 25.39 +Outstanding at January 2, 2021 3,259,405 $ 22.22 3.9 $ 29.7 +Granted 23,610 34.22 +Exercised ( 776,850 ) 22.11 +Canceled ( 17,353 ) 33.79 +Outstanding at January 1, 2022 2,488,812 $ 22.29 3.2 $ 16.7 +Granted 20,171 25.19 +Exercised ( 74,482 ) 18.26 +Canceled ( 101,091 ) 22.57 +Outstanding at December 31, 2022 2,333,410 $ 22.43 2.4 $ — +Unvested at December 31, 2022 ( 36,909 ) +Exercisable at December 31, 2022 2,296,501 $ 22.33 2.3 $ — +The total pretax intrinsic value of stock options exercised during fiscal years 2022, 2021 and 2020 was $ 0.4 million, $ 11.4 million and $ 9.3 million, respectively. As of December 31, 2022, there was $ 0.1 million of unrecognized compensation expense related to stock option grants expected to be recognized over a weighted-average period of 0.9 years. As of January 1, 2022 and January 2, 2021, there was $ 0.2 million and $ 0.1 million, respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 1.3 years and 0.9 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price o f the Company's stock was above the strike price ("in-the-money"), as of that date. There were no in-the-money options exercisable as of December 31, 2022, based on the Company’s closing stock price of $ 10.93 per share . As of January 1, 2022, 2,247,575 outstanding options were exercisable and in-the-money, with a weighted-average exercise price of $ 21.70 per share. +13. RETIREMENT PLANS +The Company has two non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The second plan is closed to new participants and no longer accrue future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company following retirement, generally for the duration of their lives. The Company maintains life insurance policies with a cash surrender value of $ 46.6 million at December 31, 2022 and $ 45.6 million at January 1, 2022 recognized as other assets on the consolidated balance sheets that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for discretionary Company contributions based on the amount of participant deferrals. The Company recognized expense for its +59 +contributions to the defined contribution plans of $ 5.6 million, $ 5.2 million and $ 4.2 million in fiscal years 2022, 2021 and 2020, respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.5 million, $ 1.4 million and $ 1.3 million in fiscal years 2022, 2021 and 2020, respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 0.8 million at December 31, 2022 and $ 1.0 million at January 1, 2022 and was recognized as a deferred compensation liability on the consolidated balance sheets. +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2022 and 2021: +Fiscal Year +(In millions) 2022 2021 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ 434.3 $ 455.8 +Service cost pertaining to benefits earned during the year +5.3 6.9 +Interest cost on projected benefit obligations +13.2 12.8 +Actuarial gains ( 107.8 ) ( 26.6 ) +Benefits paid to plan participants +( 16.8 ) ( 14.6 ) +Projected benefit obligations at end of the year +$ 328.2 $ 434.3 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ 323.0 $ 305.0 +Actual return (loss) on plan assets ( 58.7 ) 30.1 +Company contributions - SERP +3.8 2.5 +Benefits paid to plan participants +( 16.7 ) ( 14.6 ) +Fair value of pension assets at end of the year +$ 251.4 $ 323.0 +Funded status +$ ( 76.8 ) $ ( 111.3 ) +Amounts recognized in the consolidated balance sheets: +Current liabilities +$ ( 3.9 ) $ ( 3.9 ) +Accrued pension liabilities ( 72.9 ) ( 107.4 ) +Net amount recognized +$ ( 76.8 ) $ ( 111.3 ) +Funded status of pension plans and SERP (supplemental): +Funded status of qualified defined benefit plans and SERP +$ ( 76.8 ) $ ( 111.3 ) +Nonqualified trust assets (cash surrender value of life insurance) recorded in other assets and intended to satisfy the projected benefit obligation of unfunded SERP obligations 38.8 38.0 +Net funded status of pension plans and SERP (supplemental) +$ ( 38.0 ) $ ( 73.3 ) +Unrecognized net actuarial loss recognized in accumulated other comprehensive income was $ 1.8 million and $ 41.8 million, and amounts net of tax were $ 1.7 million and $ 33.2 million, as of December 31, 2022 and January 1, 2022, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 315.9 million at December 31, 2022 and $ 416.1 million at January 1, 2022 . The decrease in benefit obligation for fiscal 2022 was the result of actuarial gains caused by changes to the discount rate . The actuarial gain included in accumulated other comprehensive loss and expected to be recognized in net periodic pension income during fiscal 2023 is $ 0.7 million. +60 +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) 2022 2021 2020 +Service cost pertaining to benefits earned during the year $ 5.3 $ 6.9 $ 6.4 +Interest cost on projected benefit obligations 13.2 12.8 14.2 +Expected return on pension assets ( 20.5 ) ( 19.5 ) ( 18.7 ) +Net amortization loss 11.3 13.8 6.6 +Net pension expense $ 9.3 $ 14.0 $ 8.5 +Less: SERP expense 3.8 5.7 5.2 +Qualified defined benefit pension plans expense $ 5.5 $ 8.3 $ 3.3 +The non-service cost components of net pension expense is recorded in the Other expense (income), net line item on the consolidated statements of operations and comprehensive income. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2022 2021 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +5.56 % 3.09 % +Rate of compensation increase - pension +4.13 % 4.18 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +3.09 % 2.85 % +Expected long-term rate of return on plan assets +6.87 % 6.75 % +Rate of compensation increase - pension +4.18 % 4.18 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five-year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining service period of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and the service and interest cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 31, 2022 were 43 % in equity securities and 57 % in fixed income securities. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +December 31, 2022 January 1, 2022 +(In millions) Total % of Total Total % of Total +Equity securities $ 112.2 +1 +44.7 % $ 181.3 +1 +56.1 % +Fixed income securities 90.0 +1 +35.8 % 118.9 +1 +36.8 % +Real Estate — +1 +— % 19.9 +1 +6.2 % +Cash 46.6 18.5 % — — % +Other 2.6 +2 +1.0 % 2.9 +2 +0.9 % +Fair value of plan assets $ 251.4 100.0 % $ 323.0 100.0 % +1 In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +61 +2 In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 1 for additional information. +The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2023 and expects to make $ 3.9 million in contributions to the SERP in fiscal 2023. +Expected benefit payments for the fiscal years subsequent to December 31, 2022 are as follows: +(In millions) 2023 2024 2025 2026 2027 2028-2032 +Expected benefit payments $ 18.3 $ 19.0 $ 19.6 $ 20.3 $ 20.9 $ 112.2 +14. INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) 2022 2021 2020 +United States $ ( 94.6 ) $ 22.7 $ ( 218.6 ) +Foreign ( 158.3 ) 57.6 34.5 +Earnings (loss) before income taxes $ ( 252.9 ) $ 80.3 $ ( 184.1 ) +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) 2022 2021 2020 +Current expense: +Federal $ 22.7 $ 14.6 $ 0.7 +State 4.0 2.5 0.6 +Foreign 28.2 15.0 8.3 +Deferred expense (benefit): +Federal ( 52.9 ) ( 17.1 ) ( 51.6 ) +State ( 4.9 ) ( 1.8 ) ( 4.4 ) +Foreign ( 60.9 ) 0.1 0.9 +Income tax expense (benefit) $ ( 63.8 ) $ 13.3 $ ( 45.5 ) +62 +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: +Fiscal Year +(In millions) 2022 2021 2020 +Income taxes at U.S. statutory rate of 21% $ ( 53.1 ) $ 16.9 $ ( 38.7 ) +State income taxes, net of federal income tax ( 2.3 ) ( 1.1 ) ( 8.1 ) +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong ( 14.2 ) ( 7.2 ) ( 3.3 ) +Other 2.1 3.1 1.2 +Adjustments for uncertain tax positions ( 0.9 ) ( 1.3 ) ( 1.4 ) +Change in valuation allowance 2.1 2.2 4.7 +Tax impact of impairment in foreign jurisdiction 3.0 — — +Global Intangible Low Tax Income tax 3.8 3.2 2.5 +Foreign Derived Intangible Income tax benefit ( 8.2 ) ( 3.7 ) ( 1.6 ) +Non-deductible executive compensation 3.3 5.2 1.6 +Permanent adjustments related to employee share based compensation 1.6 ( 3.7 ) ( 4.6 ) +Deferred tax on future cash dividends ( 0.2 ) ( 0.9 ) 1.0 +Income tax audit adjustments — 2.5 — +Deferred adjustment for income tax audit — ( 1.2 ) — +Other Permanent adjustments and non-deductible expenses ( 1.4 ) ( 0.3 ) 1.0 +Other 0.6 ( 0.4 ) 0.2 +Income tax expense (benefit) $ ( 63.8 ) $ 13.3 $ ( 45.5 ) +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) December 31, +2022 January 1, +2022 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances $ 18.1 $ 5.2 +Deferred compensation accruals 4.3 7.2 +Accrued pension expense 18.7 25.7 +Stock-based compensation 9.1 8.2 +Net operating loss and foreign tax credit carryforwards 19.9 18.5 +Book over tax depreciation and amortization 0.5 0.4 +Tenant lease expenses 4.3 4.0 +Environmental reserve 28.3 33.7 +Other 6.5 9.5 +Total gross deferred income tax assets 109.7 112.4 +Less valuation allowance ( 26.7 ) ( 24.6 ) +Net deferred income tax assets 83.0 87.8 +Deferred income tax liabilities: +Intangible assets ( 76.2 ) ( 190.6 ) +Tax over book depreciation and amortization ( 9.4 ) ( 9.3 ) +Other ( 8.2 ) ( 5.0 ) +Total deferred income tax liabilities ( 93.8 ) ( 204.9 ) +Net deferred income tax liabilities $ ( 10.8 ) $ ( 117.1 ) +63 +The valuation allowance for deferred income tax assets as of December 31, 2022 and January 1, 2022 was $ 26.7 million and $ 24.6 million, respectively. The net increase in the total valuation allowance during fiscal 2022 was $2.1 million. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions. The current year change in the valuation allowance results in a decrease against the state deferred tax assets of $ 0.3 million, an increase related to state net operating loss carryforward of $ 0.3 million, and a net increase relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 2.1 million. +At December 31, 2022, the Company had foreign net operating loss carryforwards of $ 33.7 million, which have expirations ranging from 2023 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. federal net operating loss carryforwards, state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 15.7 million, $ 224.7 million and $ 43.6 million respectively, which have expirations ranging from 2023 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.7 million, which are available for an unlimited carryforward period to offset future foreign taxes. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) 2022 2021 +Unrecognized tax benefits at beginning of the year $ 10.9 $ 5.5 +Increases related to current year tax positions 0.2 7.8 +Decreases related to prior year positions ( 1.1 ) ( 0.9 ) +Decreases relating to settlements with taxing authorities ( 0.5 ) ( 1.4 ) +Decrease due to lapse of statute ( 0.5 ) ( 0.1 ) +Unrecognized tax benefits at end of the year $ 9.0 $ 10.9 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 9.0 million and $ 10.1 million as of December 31, 2022 and January 1, 2022, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 0.5 million and $ 0.6 million as of December 31, 2022 and January 1, 2022, respectively. +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. +The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 1.1 million and $ 1.4 million for fiscal years 2022 and 2021, respectively. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 176.0 million at December 31, 2022. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +64 +15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) +Accumulated other comprehensive income represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +The change in accumulated other comprehensive income (loss) during fiscal years 2022 and 2021 is as follows: +(In millions) Foreign +currency +translation Derivatives Pension Total +Balance at Balance at January 2, 2021 $ ( 36.8 ) $ ( 20.3 ) $ ( 73.5 ) $ ( 130.6 ) +Other comprehensive income (loss) before reclassifications (1) +( 20.0 ) 7.7 29.5 17.2 +Amounts reclassified from accumulated other comprehensive income (loss) — 5.1 +(2) +13.8 +(3) +18.9 +Income tax (expense) benefit — ( 1.4 ) ( 3.0 ) ( 4.4 ) +Net reclassifications +— 3.7 10.8 14.5 +Net current-period other comprehensive income (loss) (1) +( 20.0 ) 11.4 40.3 31.7 +Balance at January 1, 2022 $ ( 56.8 ) $ ( 8.9 ) $ ( 33.2 ) $ ( 98.9 ) +Other comprehensive income (loss) before reclassifications (1) +( 76.3 ) 25.4 22.6 ( 28.3 ) +Amounts reclassified from accumulated other comprehensive income (loss) — ( 19.3 ) +(2) +11.3 +(3) +( 8.0 ) +Income tax (expense) benefit — 4.7 ( 2.4 ) 2.3 +Net reclassifications +— ( 14.6 ) 8.9 ( 5.7 ) +Net current-period other comprehensive income (loss) (1) +( 76.3 ) 10.8 31.5 ( 34.0 ) +Balance at December 31, 2022 $ ( 133.1 ) $ 1.9 $ ( 1.7 ) $ ( 132.9 ) +(1) Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) Amounts related to foreign currency derivatives used to manage the volatility associated with inventory purchases in various currencies and deemed to be highly effective are included in cost of goods sold. Amounts related to foreign currency derivatives that are no longer deemed to be highly effective are included in other income. Amounts related to interest rate swaps and the cross currency swap are included in interest expense. +(3) Amounts reclassified are included in the computation of net pension expense. +16. FAIR VALUE MEASUREMENTS +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) December 31, 2022 January 1, 2022 +Financial assets: +Derivatives $ 13.6 $ 5.9 +Financial liabilities: +Derivatives $ ( 1.3 ) $ ( 1.1 ) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. The fair value of the cross-currency swap is determined using the current forward rates and changes in the spot rate. +Nonrecurring Fair Value Measurements +Indefinite-lived intangible assets and goodwill are tested annually, or if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3). In the fourth quarter of fiscal 2022, after completion of its annual impairment testing, the Company recognized a $ 48.4 million goodwill impairment charge to the Sweaty Betty ® reporting unit. The Company also recorded impairment charges of $ 189.3 million and $ 191.0 million to +65 +the Sweaty Betty ® and Sperry ® indefinite-lived trade names, respectively, in fiscal 2022. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sweaty Betty ® goodwill impairment and the Sperry ® and Sweaty Betty ® trade name impairments. +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt are as follows: +(In millions) December 31, 2022 January 1, 2022 +Carrying value $ 1,158.0 $ 966.8 +Fair value 1,042.9 960.6 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +17. LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M Company changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets and Scotchgard™. +In May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion (“ppt”) combined for PFOA and PFOS, which the EPA reduced in June 2022 to 0.004 ppt and 0.02 ppt for PFOA and PFOS, respectively. In January 2018, the Michigan Department of Environmental Quality (“MDEQ”, now known as the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”)) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. On August 3, 2020, Michigan changed the standards for PFOA and PFOS in drinking water to 8 and 16 ppt, respectively, and set standards for four other PFAS substances. +Civil and Regulatory Actions of EGLE and EPA +On January 10, 2018, EGLE filed a civil action against the Company in the U.S. District Court for the Western District of Michigan under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”) and Parts 201 and 31 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has resulted in releases of PFAS at levels exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action"). Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, NREPA, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and common law nuisance. +On February 3, 2020, the parties entered into a consent decree resolving the EGLE Action, which was approved by U.S. District Judge Janet T. Neff on February 19, 2020 (the “Consent Decree”). Under the Consent Decree, the Company agreed to pay for an extension of Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million. The Company also agreed to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to assess the presence of PFAS in area groundwater. The Company’s activities under the Consent Decree are not materially impacted by either the drinking water standards that became effective on August 3, 2020, or the EPA’s revised advisory levels issued in June 2022. +On December 19, 2018, the Company filed a third-party complaint against 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the EGLE Action ("the 3M Action"). On June 20, 2019, +66 +the 3M Company filed a counterclaim against the Company in response to the 3M Action, seeking, among other things, contractual and common law indemnity and contribution under CERCLA and Part 201 of NREPA. On February 20, 2020, the Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company paid the Company a lump sum amount of $ 55.0 million during the first quarter of 2020. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a) with an effective date of February 1, 2018. The Order pertained to specified removal actions at the Company's Tannery and House Street sites, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites. On October 28, 2019, the EPA and the Company entered into an Administrative Settlement and Order on Consent (“AOC”) that supersedes the Order and addresses the agreed-upon removal actions outlined in the Order. The Company has completed the activities required by the AOC, and is awaiting the final review and determination from the EPA. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual and Class Action Litigation +Beginning in late 2017, individual lawsuits and three putative class action lawsuits were filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. The three putative class action lawsuits were subsequently refiled in the U.S. District Court for the Western District of Michigan as a single consolidated putative class action lawsuit. 3M Company has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit. In addition, the current owner of a former landfill and gravel mining operation sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (this suit collectively with the individual lawsuits and putative class action, the “Litigation Matters”). +On January 11, 2022, the Company and 3M Company entered into a master settlement agreement with the law firm representing certain of the plaintiffs in the individual lawsuits included in the Litigation Matters, and each of these plaintiffs subsequently agreed to participate in the settlement. These plaintiffs’ lawsuits were dismissed with prejudice on or around April 25, 2022. +On December 9, 2021, the Company and 3M Company reached a settlement in principle to resolve certain of the remaining individual lawsuits included in the Litigation Matters, and the parties entered into definitive settlement agreements in March 2022. These plaintiffs’ lawsuits were dismissed with prejudice on June 14, 2022. The last remaining individual action included in the Litigation Matters was dismissed without prejudice on June 24, 2022. +In addition, in September 2022, the parties to the putative class action filed a motion for preliminary approval of a proposed class action settlement seeking to resolve the putative class action plaintiffs’ claims (the “Motion for Preliminary Approval”). On September 19, 2022, the court granted the Motion for Preliminary Approval and scheduled a final approval hearing regarding the settlement for March 29, 2023. +Only one of the Litigation Matters, the lawsuit filed by the current owner of a former landfill and gravel mining operations, remains pending in Michigan state court, and it is in the discovery and motions stages of litigation. +For certain of the Litigation Matters described above and as a result of developments during 2022, the Company has increased its accrual by $ 40.5 million since January 1, 2022 and made related payments of $ 50.1 million. As of December 31, 2022, the Company had recorded liabilities of $ 40.5 million for certain of the Litigation Matters described above which are recorded as other accrued liabilities in the consolidated balance sheets. +In December 2018, the Company filed a lawsuit against certain of its historic liability insurers, seeking to compel them to provide a defense against the Litigation Matters on the Company's behalf and coverage for remediation efforts undertaken by, and indemnity provided by, the Company. The Company recognized certain recoveries from legacy insurance policies in 2022 and 2021, and continues pursing additional recoveries through the lawsuit. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment, intellectual property, and consumer related matters. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available to the Company and reserves for liabilities that the Company has recorded, along with applicable insurance, it is management’s opinion that the outcome of these +67 +items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +Environmental Liabilities +The following is a summary of the activity with respect to the environmental remediation reserve established by the Company: +Fiscal Year +(In millions) 2022 2021 +Remediation liability at beginning of the year +$ 85.7 $ 101.8 +Changes in estimate +6.8 — +Amounts paid +( 18.4 ) ( 16.1 ) +Remediation liability at the end of the year +$ 74.1 $ 85.7 +The reserve balance as of December 31, 2022 includes $ 49.8 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 24.3 million expected to be paid over the course of up to 25 years, recorded in other liabilities . +The Company's remediation activity at the Tannery property, House Street site and other relevant operations or disposal sites is ongoing. Although the Consent Decree has made near-term costs more clear, it is difficult to estimate the long-term cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to December 31, 2022 are as follows: +(In millions) 2023 2024 2025 2026 2027 Thereafter +Minimum royalties $ 1.0 $ — $ — $ — $ — $ — +Minimum advertising 3.9 3.9 4.2 4.3 4.4 4.6 +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 2.3 million, $ 2.3 million and $ 1.9 million for fiscal years 2022, 2021 and 2020, respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 6.5 million, $ 6.5 million and $ 2.5 million for fiscal years 2022, 2021 and 2020, respectively. +18. BUSINESS SEGMENTS +The Company’s portfolio of brands are organized into the following three reportable segments. During the fourth quarter of 2022, the Company announced changes to its reportable segments as a result of changes in how its Chief Operating Decision Maker, the Company's Chief Executive Officer, allocates resources to and assess performance of the Company's operating segments. All prior period disclosures have been retrospectively adjusted to reflect the new reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; and +68 +• Lifestyle Group , consisting of Sperry ® footwear, Keds ® footwear, and Hush Puppies ® footwear and apparel. +The Company's operating segments are the Work Group, Lifestyle Group, Active Group, and Sweaty Betty ® . Sweaty Betty ® and the Active Group were evaluated and combined into one reportable segment because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite® licensed business. The Corporate category consists of the gain on the sale of the Champion trademarks in fiscal 2022 and unallocated corporate expenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and goodwill, reorganization activities, and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s direct-to-consumer businesses. The Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +Company management uses various financial measures to evaluate the performance of the reportable segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) 2022 2021 2020 +Revenue: +Active Group $ 1,570.2 $ 1,319.6 $ 909.3 +Work Group 590.5 548.8 425.4 +Lifestyle Group 447.5 477.0 407.0 +Other 76.6 69.5 49.4 +Total $ 2,684.8 $ 2,414.9 $ 1,791.1 +Operating profit (loss): +Active Group $ 198.4 $ 229.5 $ 164.1 +Work Group 102.5 103.8 65.2 +Lifestyle Group 48.1 67.5 34.2 +Other 11.8 8.1 6.1 +Corporate ( 569.2 ) ( 253.2 ) ( 406.7 ) +Total $ ( 208.4 ) $ 155.7 $ ( 137.1 ) +Interest expense, net 47.3 37.4 43.6 +Debt extinguishment and other costs — 34.3 5.5 +Other expense (income), net ( 2.8 ) 3.7 ( 2.1 ) +Earnings (loss) before income taxes $ ( 252.9 ) $ 80.3 $ ( 184.1 ) +69 +Fiscal Year +(In millions) 2022 2021 2020 +Depreciation and amortization expense: +Active Group $ 8.1 $ 5.4 $ 2.7 +Work Group 0.3 0.3 0.4 +Lifestyle Group 2.0 2.3 3.0 +Other 1.4 1.6 2.0 +Corporate 22.8 23.6 24.7 +Total $ 34.6 $ 33.2 $ 32.8 +Capital expenditures: +Active Group $ 18.9 $ 5.0 $ 1.4 +Work Group 0.4 0.4 — +Lifestyle Group 2.0 0.1 1.7 +Other 3.2 1.7 0.9 +Corporate 12.0 10.4 6.3 +Total $ 36.5 $ 17.6 $ 10.3 +(In millions) December 31, +2022 January 1, +2022 +Total assets: +Active Group $ 1,331.5 $ 1,377.3 +Work Group 375.7 284.2 +Lifestyle Group 514.8 663.4 +Other 58.6 57.8 +Corporate 212.1 203.7 +Total $ 2,492.7 $ 2,586.4 +Goodwill: +Active Group $ 314.4 $ 380.3 +Work Group 59.6 61.3 +Lifestyle Group 97.4 101.3 +Other 13.6 13.7 +Total $ 485.0 $ 556.6 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) 2022 2021 2020 +United States $ 1,563.1 $ 1,573.9 $ 1,234.2 +Foreign: +Europe, Middle East and Africa 602.5 460.3 279.8 +Asia Pacific 245.7 161.6 120.3 +Canada 126.8 116.9 88.9 +Latin America 146.7 102.2 67.9 +Total from foreign territories 1,121.7 841.0 556.9 +Total revenue $ 2,684.8 $ 2,414.9 $ 1,791.1 +70 +The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment and lease right-of-use assets, is as follows: +(In millions) December 31, +2022 January 1, +2022 January 2, +2021 +United States $ 222.3 $ 205.8 $ 222.2 +Foreign countries 88.6 61.4 44.9 +Total $ 310.9 $ 267.2 $ 267.1 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2022, the Company sourced 100 % of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +19. BUSINESS ACQUISITIONS +Sweaty Betty ® +On July 31, 2021, the Company entered into a definitive agreement to acquire 100 % of the outstanding shares of Lady of Leisure InvestCo Limited. The acquisition was completed on August 2, 2021 for $ 417.4 million, net of acquired cash of $ 7.4 million. The Acquired Company owns the Sweaty Betty ® brand and activewear business. The acquisition was funded with cash on hand and borrowings under the Company’s Revolving Facility. +Sweaty Betty ® is a premium women’s activewear brand that distributes a wide array of innovative on-trend tops, bottoms, swimwear, outerwear and accessories around the world, mainly through direct-to-consumer channels. The Sweaty Betty ® acquisition is part of the Company’s strategic shift over the last several years from a traditional footwear wholesaler to a consumer-obsessed, digital-focused growth company. The acquisition also aligns with the Company’s strategic growth plan to focus on expanding the Company’s digital and international footprint, and building the brand portfolio beyond footwear. +Sweaty Betty ® contributed net revenue of $ 211.5 million and net loss of $ 5.5 million to the Company for the year ended December 31, 2022. The Sweaty Betty ® operating results are included in the Active category for segment reporting purposes. +The Company recognized acquisition-related transaction costs of $ 7.5 million, all of which were recognized in fiscal year 2021 in the selling, general and administrative expenses line item in the Consolidated Statement of Operations. These costs represent investment banking fees, legal and professional fees, transaction fees, and consulting fees associated with the acquisition. +The Company accounted for the acquisition following FASB ASC Topic 805, Business Combinations , and the related assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The aggregate purchase price was allocated to the major categories of assets acquired and liabilities assumed based upon their respective fair values at the acquisition date using primarily Level 2 and Level 3 inputs. The Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates. The Sweaty Betty ® trademark, which is estimated to have an indefinite life, has been valued at $ 346.4 million using the multi-period excess earnings method. The multi-period excess earnings method requires the use of significant estimates and assumptions, including but not limited to, future revenues, growth rates, EBITDA margin, tax rates and a discount rate. The purchase price allocation was finalized during the quarter ended July 2, 2022. +71 +The following table summarizes the purchase price allocation to the assets acquired and liabilities assumed at the acquisition date: +(In millions) Fair Value +Accounts receivable $ 3.6 +Inventories 48.4 +Prepaid expenses and other current assets 5.3 +Property, plant and equipment 10.0 +Lease right-of-use assets 7.0 +Goodwill 118.9 +Intangibles 355.0 +Other assets 0.6 +Total assets acquired 548.8 +Accounts payable 13.1 +Accrued salaries and wages 6.0 +Other accrued liabilities 14.3 +Lease liabilities 7.0 +Deferred income taxes 91.0 +Total liabilities assumed 131.4 +Net assets acquired $ 417.4 +Goodwill is the result of expected synergies and the Company’s ability to grow the Sweaty Betty ® brand, as well as the acquired assembled workforce. All of the goodwill is presented within the Active Group for segment reporting purposes and within the Sweaty Betty ® reporting unit and will not be deductible for income tax purposes. +Intangible assets acquired in the acquisition were valued on the acquisition date as follows: +(In millions) Intangible Asset Useful life +Trade name and trademark $ 346.4 Indefinite +Customer relationship 7.2 18 years +Backlog 1.0 5 months +Customer list 0.4 3 years +Total intangible assets acquired $ 355.0 +The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of the Sweaty Betty ® brand and activewear business occurred at the beginning of fiscal 2020. The pro forma information is not necessarily indicative of the results that would have actually been obtained if the acquisition had occurred at such date or that may be attained in the future. These pro forma amounts have been calculated after including the historical Sweaty Betty ® operating results in the Company’s consolidated results and reflecting the following adjustments: fair value adjustments for intangible assets and inventory acquired, timing adjustment to recognize acquisition related costs incurred in 2021 and in 2020, and adjustments reflecting historical interest expense. The adjustments have been applied with related tax effects. +Fiscal Year +(In millions) 2021 2020 +Net revenue $ 2,552.4 $ 1,954.7 +Net earnings attributable to Wolverine World Wide, Inc. 83.9 ( 144.9 ) +20. VARIABLE INTEREST ENTITIES AND RELATED PARTY TRANSACTIONS +Assets and Liabilities of Consolidated VIEs +The Company has joint ventures that source and market the Company’s footwear and apparel products in China. Based upon the criteria set forth in FASB ASC 810, Consolidation , the Company has determined two of the consolidated joint ventures are variable interest entities (VIEs) and the Company is the primary beneficiary. The primary beneficiary determination is based on the relationship between the Company and the VIE, including contractual agreements between the Company and the VIE. +72 +Specifically, the Company has the power to direct the activities that are considered most significant to the entities’ performance and the Company has the obligation to absorb losses and the right to receive benefits that are significant to the entities. The other equity holder’s interests are reflected in “net earnings (loss) attributable to noncontrolling interests” in the Consolidated Statement of Operations and “Noncontrolling interest” in the Consolidated Balance Sheets. Assets held by the VIEs are only available to settle obligations of the respective entities. Holders of liabilities of the VIEs do not have recourse to the Company. +The following is a summary of the entities’ assets and liabilities included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2022 2021 +Cash $ 5.8 $ 3.7 +Accounts receivable 19.7 8.0 +Inventory 16.0 9.7 +Other current assets 2.4 0.1 +Noncurrent assets 0.8 0.7 +Total assets 44.7 22.2 +Current liabilities 9.6 4.0 +Noncurrent liabilities 1.6 2.4 +Total liabilities $ 11.2 $ 6.4 +Nonconsolidated VIEs +The Company also has two joint ventures that are VIEs and are not consolidated as the Company does not have the power to direct the most significant activities that impact the VIEs' economic performance. The two VIEs distribute footwear and apparel products in the Asia Pacific region. The following is a summary of carrying amounts of assets included in the Company’s consolidated balance sheets for fiscal years 2022 and 2021 related to VIEs for which the Company is not the primary beneficiary. The Company’s maximum exposure to loss is the same as the carrying amounts. +The following is a summary of the carrying amounts of assets included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2022 2021 +Equity method investments (1) +$ 8.1 $ 7.1 +(1) Equity method investments are included in “Other Assets” on the Consolidated Balance Sheets. +Related Party Transactions +In the normal course of business, the Company enters into transactions with related party equity affiliates. Related party transactions consist of the sale of goods, made at arm’s length, and other arrangements. For the fiscal years ended December 31, 2022 and January 1, 2022 the Company recognized net sales to equity affiliates totaling $ 35.5 million and $ 19.5 million, respectively. +The following table summarizes related party transactions included in the consolidated balance sheets. +Fiscal Year +(In millions) 2022 2021 +Accounts receivable due from related parties $ 18.1 $ 10.3 +Long term liabilities due to related parties — 2.4 +Long term assets due from related parties 1.6 — +21. ASSETS AND LIABILITIES HELD FOR SALE +During the fourth quarter of 2022, the Company announced that it had initiated a formal process to divest the Keds ® business and Wolverine Leathers business, both of which are low-profit contributors. The Company has determined that both the Keds ® +73 +business and the Wolverine Leathers business meet the criteria to be classified as held for sale, and therefore have reclassified the related assets and liabilities as held for sale on the Consolidated Balance Sheets. +The following is a summary of the major categories of assets and liabilities that have been classified as held for sale on the Consolidated Balance Sheets at December 31, 2022: +(In millions) 2022 +Cash and cash equivalents $ 4.0 +Accounts receivables, net 3.5 +Inventories 43.1 +Indefinite-lived intangibles 11.4 +Other assets 5.9 +Total assets held for sale 67.9 +Accounts payable 8.1 +Accrued liabilities 0.7 +Total liabilities held for sale 8.8 +The Company determined that the divestiture of the Keds ® business and Wolverine Leathers business do not represent a strategic shift that had or will have a major effect on the Consolidated Results of Operations, and therefore results were not classified as discontinued operations. +22. SUBSEQUENT EVENT +On February 7, 2023 the Company entered into an Asset Purchase Agreement with Designer Brands, Inc. (the "Buyer") pursuant to which the Buyer agreed to purchase the global Keds ® business, other than the Excluded Assets (as defined in the Asset Purchase Agreement), and to assume certain liabilities. The purchase price was approximately $ 83.6 million and the sale was effective February 4, 2023, in accordance with the terms and conditions of the Asset Purchase Agreement. +74 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matters +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +75 +Valuation of goodwill and indefinite-lived intangibles +Description of the Matter +At December 31, 2022, the Company’s goodwill and indefinite-lived intangible assets were $485.0 million and $274.0 million, respectively. During 2022, the Company recognized a goodwill impairment charge of $48.4 million associated with its Sweaty Betty reporting unit and impairment charges of $191.0 million and $189.3 million, associated with its Sperry and Sweaty Betty indefinite-lived intangible assets, respectively. As discussed in Notes 1 and 4 of the consolidated financial statements, goodwill and indefinite-lived intangibles are tested for impairment at least annually. The impairment test for goodwill consists of measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. The impairment test for indefinite-lived intangible assets consists of measuring the fair value of the asset and comparing it to the asset’s carrying amount. +Auditing management’s annual impairment tests for goodwill and indefinite-lived intangible assets was complex due to the significant estimation uncertainty required in determining the fair values of certain reporting units and the Sperry and Sweaty Betty trade names. The significant assumptions used to estimate the fair values of certain reporting units and the Sperry and Sweaty Betty trade names included the forecasted revenue growth, EBITDA margin, and discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. Changes in these assumptions could have a significant impact on the fair values of certain reporting units and the Sperry and Sweaty Betty trade names, the amount of any impairment charge, or both. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the impairment review process. For example, we tested controls that address the risk of material misstatement relating to the valuation of certain reporting units and the Sperry and Sweaty Betty trade names, including management’s review of the significant assumptions described above and the completeness and accuracy of the data used to develop such estimates. +To test the estimated fair values of certain reporting units and the Sperry and Sweaty Betty trade names, our audit procedures included, among others, assessing the appropriateness of the valuation model used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the financial projections to current industry and economic trends and the historical accuracy of management’s estimates. We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 23, 2023 +76 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the fiscal years ended December 31, 2022, January 1, 2022, and January 2, 2021, and the related notes and financial statement schedule and our report dated February 23, 2023 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 23, 2023 +77 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2022, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 31, 2022. +The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2022 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. Other Information +None. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine World Wide, Inc. expected to be held on May 3, 2023 in sections "Election of Directors" and "Corporate Governance". The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct is posted on our website located at http://www.wolverineworldwide.com/investor-relations/corporate-governance/. We intend to disclose future amendments to certain provisions of the Code of Business Conduct, and waivers of the Code of Business Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver. +Item 11. Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Compensation Discussion and Analysis". +78 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Securities Ownership in Officers and Directors and Certain Beneficial Owners". +Equity Compensation Plan Information +The following table provides information about the Company’s equity compensation plans as of December 31, 2022: +Plan Category (1) +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights +(a) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights +(b) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans Excluding Securities Reflected in Column (a)) +(c) +Equity compensation plans approved by security holders +2,333,410 +(2), (3) +$ 22.43 5,648,310 +(4) +Equity compensation plans not approved by security holders +— — — +Total 2,333,410 $ 22.43 5,648,310 +(1) Each plan for which aggregated information is provided contains customary anti-dilution provisions that are applicable in the event of a stock split, stock dividend or certain other changes in the Company’s capitalization. +(2) Includes: (i) 2,086,864 stock options awarded to employees under the Amended and Restated Stock Incentive Plan of 1999, the Amended and Restated Stock Incentive Plan of 2001, the Amended and Restated Stock Incentive Plan of 2003, the Amended and Restated Stock Incentive Plan of 2005, the Stock Incentive Plan of 2010, the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and restated; and (ii) and 246,546 stock options awarded to non-employee directors under the Amended and Restated Stock Incentive Plan of 2005, the Stock Incentive Plan of 2010, the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and rested. Column (a) does not include stock units credited to outside directors’ fee accounts or retirement accounts under the Outside Directors’ Deferred Compensation Plan. Stock units do not have an exercise price. Each stock unit credited to a director’s fee account and retirement account under the Outside Directors’ Deferred Compensation Plan will be converted into one share of common stock upon distribution. Column (a) also does not include shares of restricted or unrestricted common stock previously issued under the Company’s equity compensation plans. +(3) Of this amount, 36,909 options were not exercisable as of December 31, 2022 due to vesting restrictions. +(4) Comprised of: (i) 104,499 shares available for issuance under the Outside Directors’ Deferred Compensation Plan upon the retirement of the current directors or upon a change in control; and (ii) 5,543,811 shares issuable under the Stock Incentive Plan of 2016, as amended and restated. +The Outside Directors’ Deferred Compensation Plan is a supplemental, unfunded, nonqualified deferred compensation plan for non-employee directors. Beginning in 2006, the Company began paying an annual equity retainer to non-management directors in the form of a contribution under the Outside Directors’ Deferred Compensation Plan. Non-management directors may also voluntarily elect to receive, in lieu of some or all directors’ fees, a number of stock units equal to the amount of the deferred directors’ fees divided by the fair market value of the Company’s common stock on the date of payment. These stock units are increased by a dividend equivalent based on dividends paid by the Company and the amount of stock units credited to the participating director’s fee account and retirement account. Upon distribution, the participating directors receive a number of shares of the Company’s common stock equal to the number of stock units to be distributed at that time. Distribution is triggered by termination of service as a director or by a change in control of the Company and can occur in a lump sum, in installments or on another deferred basis. A total of 309,164 shares have been issued to a trust to satisfy the Company’s obligations when distribution is triggered and are included in shares the Company reports as issued and outstanding. +The Stock Incentive Plan of 2016, as amended and restated, is an equity-based incentive plan for officers, key employees, and directors. Such plan authorizes awards of stock options, restricted common stock, common stock, restricted stock units and/or stock appreciation rights. The Stock Incentive Plan of 2016, as amended and restated, provides that each share of restricted or unrestricted common stock and each restricted stock unit issued under the plan is counted as 2.6 shares against the total number of shares authorized for issuance under the plan. The number of securities listed as remaining available in column (c) of the table assumes only stock options will be issued under the plan in the future; each stock option counts as only one share against the total number of shares authorized for issuance under the plan. Actual shares available under the plan will be less to the extent that the Company awards restricted common stock, unrestricted common stock or restricted stock units under the plan. The numbers provided in this footnote and in column (c) will increase to the extent that options relating to the number of shares listed in column (a) of the table or other outstanding awards (e.g., shares of restricted or unrestricted stock, restricted stock units or stock appreciation rights) previously issued under the plan are canceled, surrendered, modified, exchanged for substitutes, +79 +expire or terminate prior to exercise or vesting because the number of shares underlying any such awards will again become available for issuance under the plan under which the award was granted. +Of the total number of shares available under column (c), the number of shares with respect to the following plans may be issued other than upon the exercise of an option, warrant or right outstanding as of December 31, 2022: +• Outside Directors’ Deferred Compensation Plan: 104,499 +• Stock Incentive Plan of 2016, as amended and restated: 2,132,235 +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". +Item 14. Principal Accountant Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Independent Registered Public Accounting Firm". +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a) The following documents are filed as part of this report: +(1) Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2022, January 1, 2022 and January 2, 2021. +• Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended December 31, 2022, January 1, 2022 and January 2, 2021. +• Consolidated Balance Sheets as of December 31, 2022 and January 1, 2022. +• Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2022, January 1, 2022 and January 2, 2021. +• Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 31, 2022, January 1, 2022 and January 2, 2021. +• Notes to the Consolidated Financial Statements. +• Reports of Independent Registered Public Accounting Firm. +(2) Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Exhibit Number Document +2.1 +Share Purchase Agreement, dated as of July 31, 2021 by and among the Institutional Sellers, the Management Sellers, and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the period ended October 2, 2021. +80 +Exhibit Number Document +2.2 +Management Warranty Deed, dated as of July 31, 2021, by and among the Warrantors and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the period ended October 2, 2021. +3.1 +Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 7 , 202 2 . +4.1 +Description of the Registrant's Securities Registered Pursuant To Section 12 of The Securities Exchange Act of 1934. Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019. +4.2 +Senior Notes Indenture, dated August 26, 2021, among Wolverine World Wide, Inc., the guarantors named therein, and The Huntington National Bank. Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 26, 2021. +4.3 +Form of 4.000% Senior Notes due 2029. Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on August 26, 2021. +10.1 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.2 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.3 +Wolverine World Wide, Inc. Deferred Compensation Plan, Amended and Restated.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.4 +First Amendment to the Wolverine World Wide, Inc. Deferred Compensation Plan, dated as of December 29, 2020.* Incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.5 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.6 +Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. +10.7 +First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.8 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.8. +10.9 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.9. +10.10 +Executive Severance Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.11 +Amendment, dated as of March 25, 2021, to the Executive Severance Agreement between Brendan Hoffman and the Company, dated as of September 8, 2020.* Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 26, 2021. +10.12 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.13 +Indemnification Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.14 +Employment Agreement between Isabel Soriano and the Company.* Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.15 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +81 +Exhibit Number Document +10.16 +Form of 409A Supplemental Retirement Plan Participation Agreement with Blake W. Krueger.* Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. +10.17 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.1 7 . +10.18 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.19 +Sixth Amendment to the Wolverine Employees' Pension Plan.* Incorporated by reference to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 29, 2018. +10.20 +First Amendment to the Wolverine Employees' Pension Plan, dated as of December 2, 2020.* Incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.21 +Second Amendment to the Wolverine Employees' Pension Plan, dated as of December 9, 2021.* Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022. +10.22 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.23 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.24 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.25 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016, as amended and restated.* Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on March 26, 2021. +10.26 +2018 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.27 +2019 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2019. +10.28 +2020 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 2020. +10.29 +2020 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 22, 2020. +10.30 +2021 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.31 +2 022 Form of Restricted Stock Unit Agreement. * Incorporated by reference to Exhibit 10.1 to the Company 's Quarterly Report on Form 10-Q for the period ended April 2, 2022 . +10.32 +Form of Performance Stock Unit Agreement (2021 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.33 +Form of Performance Stock Unit Agreement (2021 - 2022 performance period).* Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.34 +Form of Performance Stock Unit Agreement (2021 - 2023 performance period).* Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.35 +Form of Performance Stock Unit Agreement (2022 - 2024 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.36 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +82 +Exhibit Number Document +10.37 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.38 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.39 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.40 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.41 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.42 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +10.43 +2018 Replacement Facility Amendment, dated as of December 6, 2018 among the Company, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, Wells Fargo Bank, National Association, Bank of America, N.A. and HSBC Bank USA, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2018. +10.44 +Second Amendment, dated as of May 5, 2020, to the Amended and Restated Credit Agreement, dated as of December 6, 2018, among Wolverine World Wide, Inc., as parent borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, the other borrowers party thereto, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 6, 2020. +10.45 +2021 Replacement Facility Amendment and Reaffirmation Agreement, dated as of October 21, 2021, among Wolverine World Wide, Inc., as parent borrower, the Additional Borrowers party thereto, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on October 25, 2021. +10.46 +Receivables Purchase Agreement dated as of December 7, 2022, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Wells Fargo Bank, N.A. as purchaser. +10.47 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.48 +Wolverine World Wide, Inc. Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2019. +10.49 +Consent Decree by and among Wolverine World Wide, Inc., the State of Michigan, Plainfield Charter Township, and Algoma Township. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 7, 2020. +83 +Exhibit Number Document +10.50 +Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 26, 2020. +10.51 +Amended Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 23, 2021. +10.52 +Trademark Acquisition Agreement by and among SR Holdings, LLC, Keds, LLC, Hanesbrands, Inc. and HBI Branded Apparel Enterprises, LLC dated June 30, 2022. Incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed on June 30, 2022. +10.53 +Asset Purchase Agreement dated as of February 7, 2023, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Vincent Camuto LLC and DBI Brands Management LLC, as purchaser. +21 +Subsidiaries of Registrant +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Executive Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +101 +The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated Statements of Comprehensive Income (loss); (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Consolidated Financial Statements. +104 +The cover page of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, formatted in Inline XBRL (included in Exhibit 101). +* Management contract or compensatory plan or arrangement. +Item 16. Form 10-K Summary +None. +84 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: February 23, 2023 By: /s/ Brendan L. Hoffman +Brendan L. Hoffman +President and Chief Executive Officer (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Brendan L. Hoffman President and Chief Executive Officer (Principal Executive Officer) February 23, 2023 +Brendan L. Hoffman +/s/ Michael D. Stornant Executive Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) February 23, 2023 +Michael D. Stornant +/s/ Blake W. Krueger Chairman of the Board February 23, 2023 +Blake W. Krueger +/s/ Jeffrey M. Boromisa Director February 23, 2023 +Jeffrey M. Boromisa +/s/ William K. Gerber Director February 23, 2023 +William K. Gerber +/s/ David T. Kollat Director February 23, 2023 +David T. Kollat +/s/ Brenda J. Lauderback Director February 23, 2023 +Brenda J. Lauderback +/s/ Nicholas T. Long Director February 23, 2023 +Nicholas T. Long +/s/ David W. McCreight Director February 23, 2023 +David W. McCreight +/s/ Kathleen Wilson-Thompson Director February 23, 2023 +Kathleen Wilson-Thompson +85 +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +(In millions) Balance at +Beginning of +Period +Charged to +Costs and +Expenses Deductions +(Describe) Balance at +End of +Period +Fiscal Year Ended December 31, 2022 +Allowance for credit losses $ 4.0 $ 1.8 $ 2.5 (A) $ 3.3 +Product returns reserve 16.6 106.0 107.3 (B) 15.3 +Allowance for cash discounts and customer markdowns 7.7 10.9 10.8 (C) 7.8 +Inventory valuation allowances 10.7 30.0 7.7 (D) 33.0 +Total $ 39.0 $ 148.7 $ 128.3 $ 59.4 +Fiscal Year Ended January 1, 2022 +Allowance for credit losses $ 6.7 $ ( 2.4 ) $ 0.3 (A) $ 4.0 +Product returns reserve 15.6 52.5 51.5 (B) 16.6 +Allowance for cash discounts and customer markdowns 11.2 9.4 12.9 (C) 7.7 +Inventory valuation allowances 9.1 5.6 4.0 (D) 10.7 +Total $ 42.6 $ 65.1 $ 68.7 $ 39.0 +Fiscal Year Ended January 2, 2021 +Allowance for credit losses $ 6.0 $ 9.7 $ 9.0 (A) $ 6.7 +Product returns reserve 11.4 41.5 37.3 (B) 15.6 +Allowance for cash discounts and customer markdowns 9.3 19.8 17.9 (C) 11.2 +Inventory valuation allowances 7.3 9.3 7.5 (D) 9.1 +Total $ 34.0 $ 80.3 $ 71.7 $ 42.6 +(A) Accounts charged off, net of recoveries. +(B) Actual customer returns. +(C) Discounts given to customers. +(D) Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2022/0000110471-23-000021/filing_metadata.csv b/raw/filings/0000110471/2022/0000110471-23-000021/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..38782b87491fedc66d8cf9d0cb826fbdc54adcf5 --- /dev/null +++ b/raw/filings/0000110471/2022/0000110471-23-000021/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2023-02-23,2022-12-31,2023-02-23T18:50:53.000Z,0000110471-23-000021,www-20221231.htm,FORM 10-K,17287432,1,1,https://www.sec.gov/Archives/edgar/data/110471/000011047123000021/www-20221231.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047123000021/,2022,2022,1 diff --git a/raw/filings/0000110471/2022/0000110471-23-000021/item1.txt b/raw/filings/0000110471/2022/0000110471-23-000021/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..66433343a169190c011ad386c1ab191ec4981db7 --- /dev/null +++ b/raw/filings/0000110471/2022/0000110471-23-000021/item1.txt @@ -0,0 +1,84 @@ +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Sperry ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +During the 2022 fiscal year, the Company’s portfolio of brands was organized into the following three reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; and +• Lifestyle Group , consisting of Sperry ® footwear, Keds ® footwear, and Hush Puppies ® footwear and apparel. +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of the gain on the sale of the Champion trademarks in 2022 and unallocated corporate expenses, such as corporate employee costs, costs related to the COVID-19 pandemic, impairment of intangible assets and goodwill, reorganization activities, and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s direct-to-consumer businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Active Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you come from, who you love, or how you move. With a persistent focus on innovation, thoughtful design and rigorous testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +5 +Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony's ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as in Company owned Saucony ® retail stores and an eCommerce site. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, Europe and Asia and the world’s best luxury retailers, including Selfridges, Harrods, Neiman Marcus and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Chaco ® : Chaco ® has a rich, 30+ year history of creating footwear that’s “Fit For Adventure” of any kind, whether that’s exploring rivers, trails or swerving city streets. Originating as an innovation in the whitewater rafting world, Chaco ® now designs footwear for all walks of life in the outdoor and lifestyle communities. The brand's mission is to help people find their way, providing access to new people, places, and experiences that make them more confident in who they are and where they’re headed. That’s why Chaco ® creates footwear that comes with all-terrain versatility, a unique 360° fit, unmatched durability and signature LUVSEAT™ footbed arch support. The MyChacos custom sandal program provides customers an opportunity to express their funky individuality, while the ReChaco program helps reduce their impact on the places they explore by repairing used sandals. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +2. Work Group +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path: men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories across three strategic territories: Work, Outdoor and Casual. The brand is best known for DuraShocks and Ultraspring comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children, sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders, U.S. Military members and military members of several foreign countries. Civilian uniform users include police officers, fire fighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle , casual, fashion, work and western footwear for men, women and kids. +6 +Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HYTEST ® Safety Footwear: The HYTEST ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HYTEST ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +3. Lifestyle Group +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® is a market leader in both boat shoes and wet weather boots, and has expanded its business into casuals and sneakers. The brand is primarily distributed through Sperry.com and in Company owned Sperry ® retail stores, as well as leading premium and better lifestyle retailers. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Ever since the creation of the iconic Keds ® Champion "sneaker" back in 1916, Keds ® has held the belief that when we feel comfortable inside and out, we can leap forward and make our marks on the world. This belief continues to inspire and drive us every day. Keds ® designs every product to support everyone—to give them the versatility, comfort, and style they need to confidently live as their truest selves. Keds ® is focused on driving unique marketing and product stories through Keds.com and distributing footwear at leading footwear retailers worldwide. Effective February 4, 2023 the Company sold the global Keds ® business to Designer Brands, Inc. (the "Buyer") pursuant to an Asset Purchase Agreement between the Company and the Buyer dated February 7, 2023. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through eCommerce sites. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. +Other Businesses +In addition to its reportable segments, the Company operates a performance leather business, sourcing operations, a multi-brand direct-to-consumer business, and the licensing of its Stride Rite ® brand. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Direct-to-Consumer Division: The multi-brand direct-to-consumer division includes retail stores that sell footwear and apparel from the Company's brand portfoli o and other brands. +Stride Rite ® Licensed Business: With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel approach and +7 +includes various means of delivery, such as print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective marketing tools to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own direct-to-consumer business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +8 +The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier. +The Company has a diversified supply base of raw pigskins and currently purchases a majority of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies®, Wolverine®, Bates®, Bounce®, Chaco®, HYTEST®, Merrell®, Sperry®, Saucony®, Stride Rite®, Sweaty Betty® , and related logos and design marks. The Company’s Wolverine Leathers Division markets its pigskin leathers under trademarks such as Silkee® and Weather-Tight® . The Company has footwear marketing and distribution rights under the Cat® and Harley-Davidson® trademarks pursuant to license arrangements with the respective trademark owners. The Cat® license was recently renewed and the license term runs through December 31, 2028 and the Harley-Davidson® license term runs through December 31, 2023. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically reflecting an increase in net working capital requirements near the end of the first and third fiscal quarters as the Company builds inventory to support peak shipping periods. Historically, cash provided by operating activities is higher in the second half of the fiscal year due to collection of wholesale channel receivables and higher direct-to-consumer sales during the holiday season. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under its revolving credit facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events, including pandemics. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +9 +Human Capital Resources +Employee Profile : As of December 31, 2022, the Company had approximately 4,300 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and the Company works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and continually developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for team members. We maintain an engaging modern recruitment marketing website to tell the Company's compelling story of opportunity and inclusion. Development starts on day one with an enriching day one experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints throughout the employee lifecycle, including a day one survey, a survey 90 days after they begin their career at the Company, regular pulse and check in surveys, and exit surveys. Insights from these surveys have been especially valuable as the COVID-19 pandemic evolves to understand employees' needs and to develop solutions to maintain a positive employee well-being. The Company's annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of the most up-to-date and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the Company's employees’ respective geographic region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state-of-the-art fitness center, child care, and doggie day care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders in which we partner with top educational institutions. This program focuses on sharpening participants' business leadership capabilities needed to grow the Company's businesses and people leadership capabilities needed to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is critical to our future success. To enhance employees career development, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion : The Company's commitment to a diverse and inclusive workforce is reflected in the wide range of cultures, religions, ethnicities and nationalities, as well as varied professional and educational backgrounds currently represented in the Company's workforce. Because the Company believes in cultivating a well-rounded, diverse workforce, the Company continuously seeks out individuals who reflect and support this goal. We have further prioritized diversity and inclusion by hiring an expert partner to help us build a framework to promote an inclusive environment today and into the future in order to make the Company an even greater place to work. Over the past two years, the Company's major development focus has been implementing a comprehensive diversity, equity, and inclusion learning program which includes learning on inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. The Company's focus on the health and safety of its workforce is also evidenced by the actions it has taken in response to the COVID-19 pandemic around the globe, including: +• Increasing employees' work from home flexibility; +• Adjusting attendance policies to encourage those who are sick to stay home; and +• Increasing cleaning protocols. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor- +10 +relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2022/0000110471-23-000021/item13.txt b/raw/filings/0000110471/2022/0000110471-23-000021/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c6b4e0ce38d9f5c5ef9827895af49bfa95096deb --- /dev/null +++ b/raw/filings/0000110471/2022/0000110471-23-000021/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". \ No newline at end of file diff --git a/raw/filings/0000110471/2022/0000110471-23-000021/item9a.txt b/raw/filings/0000110471/2022/0000110471-23-000021/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..2a3a41a6dc456ea6b40026604143ec457f7e4bf8 --- /dev/null +++ b/raw/filings/0000110471/2022/0000110471-23-000021/item9a.txt @@ -0,0 +1,8 @@ +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2022, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 31, 2022. +The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2022 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2022/0000110471-23-000021/rp_note.txt b/raw/filings/0000110471/2022/0000110471-23-000021/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..73c60257873dc8f940e69e9d5c37de548c2abf26 --- /dev/null +++ b/raw/filings/0000110471/2022/0000110471-23-000021/rp_note.txt @@ -0,0 +1,33 @@ +20. VARIABLE INTEREST ENTITIES AND RELATED PARTY TRANSACTIONS +Assets and Liabilities of Consolidated VIEs +The Company has joint ventures that source and market the Company’s footwear and apparel products in China. Based upon the criteria set forth in FASB ASC 810, Consolidation , the Company has determined two of the consolidated joint ventures are variable interest entities (VIEs) and the Company is the primary beneficiary. The primary beneficiary determination is based on the relationship between the Company and the VIE, including contractual agreements between the Company and the VIE. +72 +Specifically, the Company has the power to direct the activities that are considered most significant to the entities’ performance and the Company has the obligation to absorb losses and the right to receive benefits that are significant to the entities. The other equity holder’s interests are reflected in “net earnings (loss) attributable to noncontrolling interests” in the Consolidated Statement of Operations and “Noncontrolling interest” in the Consolidated Balance Sheets. Assets held by the VIEs are only available to settle obligations of the respective entities. Holders of liabilities of the VIEs do not have recourse to the Company. +The following is a summary of the entities’ assets and liabilities included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2022 2021 +Cash $ 5.8 $ 3.7 +Accounts receivable 19.7 8.0 +Inventory 16.0 9.7 +Other current assets 2.4 0.1 +Noncurrent assets 0.8 0.7 +Total assets 44.7 22.2 +Current liabilities 9.6 4.0 +Noncurrent liabilities 1.6 2.4 +Total liabilities $ 11.2 $ 6.4 +Nonconsolidated VIEs +The Company also has two joint ventures that are VIEs and are not consolidated as the Company does not have the power to direct the most significant activities that impact the VIEs' economic performance. The two VIEs distribute footwear and apparel products in the Asia Pacific region. The following is a summary of carrying amounts of assets included in the Company’s consolidated balance sheets for fiscal years 2022 and 2021 related to VIEs for which the Company is not the primary beneficiary. The Company’s maximum exposure to loss is the same as the carrying amounts. +The following is a summary of the carrying amounts of assets included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2022 2021 +Equity method investments (1) +$ 8.1 $ 7.1 +(1) Equity method investments are included in “Other Assets” on the Consolidated Balance Sheets. +Related Party Transactions +In the normal course of business, the Company enters into transactions with related party equity affiliates. Related party transactions consist of the sale of goods, made at arm’s length, and other arrangements. For the fiscal years ended December 31, 2022 and January 1, 2022 the Company recognized net sales to equity affiliates totaling $ 35.5 million and $ 19.5 million, respectively. +The following table summarizes related party transactions included in the consolidated balance sheets. +Fiscal Year +(In millions) 2022 2021 +Accounts receivable due from related parties $ 18.1 $ 10.3 +Long term liabilities due to related parties — 2.4 +Long term assets due from related parties 1.6 — \ No newline at end of file diff --git a/raw/filings/0000110471/2022/0000110471-23-000021/rpt_disclosure.txt b/raw/filings/0000110471/2022/0000110471-23-000021/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..47655027eb3a3364938928c1d0ec6a981141d13a --- /dev/null +++ b/raw/filings/0000110471/2022/0000110471-23-000021/rpt_disclosure.txt @@ -0,0 +1,49 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since January 1, 2023, the Company has not engaged in any “related person” transactions with any person who is +or was during the last fiscal year a director, executive officer, nominee for director or holder of 5% or more of Company voting securities, affiliate or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +Wolverine Worldwide's Board adopted written policies and procedures regarding related person transactions. They +require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the +Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or +relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +The aggregate amount involved exceeds or is expected to exceed $120,000 since the beginning of Wolverine +Worldwide's last completed fiscal year; +(2) +The Company or any of its subsidiaries is a participant; and +(3) +Any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +Any employment compensation paid to an executive officer of the Company if the Compensation Committee +approved or recommended to the Board of Directors for approval of such compensation; +(2) +Any compensation paid to a director for service as a director of the Company; +(3) +Any transaction in which a Related Person has an indirect interest solely as a result of being (i) a +director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together +with all other Related Persons, has an interest of less than 10%; +(4) +Any transaction in which the Related Person's interest arises solely from the ownership of the Company's +common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend); or +(5) +Any transaction with another publicly traded company where the Related Person's interest arises solely +from the ownership of more than 5% of the Company's common stock and the ownership of a non-controlling interest in the other publicly traded company. +Related Person +Any: +(a) +Person who is or was (at any time since the beginning of the Company’s last completed fiscal year even if +they do not presently serve in that role), an executive officer, a director or, to the extent information regarding such nominee is being presented in a proxy or information statement relating to the election of that nominee as a +director, a nominee for election as a director; +(b) +Beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +Immediate family member* of any of the foregoing. +* +Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, +mothers and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law, and anyone residing in such person's home (other than a tenant or employee). +The Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms +generally available to an unaffiliated third party under the same or similar circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or +approval of an Interested Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. \ No newline at end of file diff --git a/raw/filings/0000110471/2023/0000110471-24-000057/filing.txt b/raw/filings/0000110471/2023/0000110471-24-000057/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..1a3ac279169eaff01ec26a5e24922fc69d0db345 --- /dev/null +++ b/raw/filings/0000110471/2023/0000110471-24-000057/filing.txt @@ -0,0 +1,2162 @@ +www-20231230 +12/30 2023 FY 0000110471 false 1 1 320,000,000 320,000,000 52 52 52 http://fasb.org/us-gaap/2023#PrepaidExpenseAndOtherAssets http://fasb.org/us-gaap/2023#OtherAccruedLiabilitiesCurrent http://fasb.org/us-gaap/2023#OtherNonoperatingIncomeExpense 5 http://fasb.org/us-gaap/2023#OtherAccruedLiabilitiesCurrent http://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrent http://fasb.org/us-gaap/2023#OtherAccruedLiabilitiesCurrent 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SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the transition period from to +Commission file number 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware 38-1185150 +State or other jurisdiction of +incorporation or organization (I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E. +Rockford , Michigan 49351 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $1 Par Value WWW New York Stock Exchange +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. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ +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 þ Accelerated filer ☐ +Non-accelerated filer +¨ +Smaller reporting company ☐ +Emerging growth company ☐ +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 Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant +to §240.10D-1(b). ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter: $ 1,145,305,700 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 9, 2024 : 79,745,927 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting expected to be held May 2, 2024 are incorporated by reference into Part III of this report. +Table of Contents +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +21 +Item 1C. +Cybersecurity +21 +Item 2. +Properties +23 +Item 3. +Legal Proceedings +23 +Item 4. +Mine Safety Disclosures +23 +Supplemental Item. +Executive Officers of the Registrant +23 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +24 +Item 6. +Reserved +25 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +25 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +35 +Item 8. +Financial Statements and Supplementary Data +37 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +80 +Item 9A. +Controls and Procedures +80 +Item 9B. +Other Information +80 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +80 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +80 +Item 11. +Executive Compensation +80 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +81 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +82 +Item 14. +Principal Accountant Fees and Services +82 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +82 +Item 16. +Form 10-K Summary +87 +SIGNATURES +88 +Appendix A: Financial Statement Schedule +A-1 +3 +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• the inability for any reason to effectively compete in global footwear, apparel and direct-to-consumer markets; +• the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• the inability to effectively manage inventory levels; +• increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• foreign currency exchange rate fluctuations; +• currency restrictions; +• supply chain and capacity constraints, production disruptions, including reduction in operating hours, labor shortages, and facility closures resulting in production delays at the Company’s manufacturers, quality issues, price increases or other risks associated with foreign sourcing; +• the cost, including the effect of inflationary pressures and availability of raw materials, inventories, services and labor for contract manufacturers; +• labor disruptions; +• changes in relationships with, including the loss of, significant wholesale customers; +• risks related to the significant investment in, and performance of, the Company’s direct-to-consumer operations; +• risks related to expansion into new markets and complementary product categories as well as direct-to-consumer operations; +• the impact of seasonality and unpredictable weather conditions; +• the impact of changes in general economic conditions and/or the credit markets on the Company’s manufacturers, distributors, suppliers, joint venture partners and wholesale customers; +• changes in the Company’s effective tax rates; +• failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• the risks of doing business in developing countries and politically or economically volatile areas; +• the ability to secure and protect owned intellectual property or use licensed intellectual property; +• the impact of regulation, regulatory and legal proceedings and legal compliance risks, including compliance with federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and litigation or other legal proceedings relating to the protection of the environment or environmental effects on human health; +• risks of breach of the Company’s databases or other systems, or those of its vendors, which contain certain personal information, payment card data or proprietary information, due to cyberattack or other similar events; +• problems affecting the Company's supply chain and distribution system, including service interruptions at shipping and receiving ports; +• strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, including Sweaty Betty ® , and implementing new initiatives and ventures; +• risks related to stockholder activism; +• the potential effects of outbreaks of COVID-19 or future health crises on the Company’s business, operations, financial results and liquidity; +• the risk of impairment to goodwill and other intangibles; +• the success of the Company’s restructuring and realignment initiatives undertaken from time to time; and +• changes in future pension funding requirements and pension expenses. +These or other uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Any standards of measurement and performance made in reference to our environmental, social, governance and other sustainability plans and goals are developing and based on assumptions, and no assurance can be given that any such plan, initiative, projection, goal, commitment, expectation or prospect can or will be achieved. +4 +PART I +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom ("U.K.") and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; and Saucony ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands are organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s direct-to-consumer businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Active Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you come from, who you love, or how you move. With a persistent focus on innovation, thoughtful design and rigorous testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +5 +Saucony ® : Saucony ® is a leading purpose-driven performance running lifestyle brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award-winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Widely recognized for award-winning technologies, Saucony ® innovations include PWRRUN™ PB, a beaded superfoam that delivers high-performance energy return; PWRRUN+™ a cushioning foam for a plush ride; SPEEDROLL™ Technology, a blend of premium foam and forward geometry to promote a faster transition; and PWRTRAC™, a trail-specific outsole rubber. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as in Company-owned Saucony ® retail stores and an eCommerce site. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, Europe and Asia and the world’s best luxury retailers, including Selfridges, Harrods, Neiman Marcus and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Chaco ® : For more than 30 years Chaco ® has been creating premium footwear for outdoor adventure in and out of water. Originating as an innovation in the whitewater rafting world, Chaco ® is the vibrant outdoor brand designing footwear for all walks of life and for a lifetime of adventure. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +2. Work Group +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path: men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories made to outfit those working in the core trades across the world. The brand is known for its heritage, durability, and best-in-class performance comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children, sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders and U.S. Military members. Civilian uniform users include police officers, firefighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear : Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HYTEST ® Safety Footwear : The HYTEST ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HYTEST ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck +6 +retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company operates sourcing operations, a multi-brand direct-to-consumer business, the licensing of its Stride Rite ® brand and Hush Puppies ® brand. The Company’s results included in Other also included Sperry ® , which was sold in 2024, and Keds ® , which was sold in 2023. The Company also operated a performance leathers business, which was sold in 2023. +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® is a market leader in both boat shoes and wet weather boots, and has expanded its business into casuals and sneakers. The brand is primarily distributed through Sperry.com and in Company owned Sperry ® retail stores, as well as leading premium and better lifestyle retailers. Effective January 10, 2024 the Company sold the global Sperry ® business to Authentic Brands Group LLC. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Ever since the creation of the iconic Keds ® Champion "sneaker" back in 1916, Keds ® has held the belief that when we feel comfortable inside and out, we can leap forward and make our marks on the world. This belief continues to inspire and drive us every day. Keds ® designs every product to support everyone—to give them the versatility, comfort, and style they need to confidently live as their truest selves. Keds ® is focused on driving unique marketing and product stories through Keds.com and distributing footwear at leading footwear retailers worldwide. Effective February 4, 2023 the Company sold the global Keds ® business to Designer Brands, Inc. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through eCommerce sites. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. The Company signed a multi-year license agreement in 2023 to license the Hush Puppies ® brand in the United States and Canada. The Company sold the rights to the Hush Puppies ® trademarks, patents, copyrights and domains in China, Hong Kong and Macau to its current sublicensee, Beijing Jiaman Dress Co., Ltd. The transaction closed on September 14, 2023. +Stride Rite ® Licensed Business: With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. The Wolverine Leathers Division was sold in two seperate transactions in 2023. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Direct-to-Consumer Division: The multi-brand direct-to-consumer division includes retail stores that sell footwear and apparel from the Company's brand portfolio and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that drive consumer demand creation, fuel consumer obsession and foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel, always-on approach and includes various means of delivery across digital, print and +7 +radio, including advertising through event sponsorship, social networking sites, event sponsorships, in-store activation and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective tools for marketing and selling to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own direct-to-consumer business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company divested its ownership interests in the China joint venture entities effective January 1, 2024. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +8 +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Wolverine ® , Bates ® , Bounce ® , Chaco ® , HYTEST ® , Merrell ® , Saucony ® , Stride Rite ® , Sweaty Betty ® , and related logos and design marks. The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license was recently renewed and the license term runs through December 31, 2028 and the Harley-Davidson ® license term runs through December 31, 2024. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically reflecting an increase in net working capital requirements near the end of the first and third fiscal quarters as the Company builds inventory to support peak shipping periods. Historically, cash provided by operating activities is higher in the second half of the fiscal year due to collection of wholesale channel receivables and higher direct-to-consumer sales during the holiday season. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under its revolving credit facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events, including pandemics. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +Human Capital Resources +Employee Profile : As of December 30, 2023, the Company had approximately 4,100 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and the Company works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for team members. Our engaging recruitment marketing website tells a compelling story of opportunity and inclusion, and highlights the Company culture. With a focus on modern recruitment systems and strategies we aim to provide a seamless transition for new employees. Development starts on day one with an enriching day one experience designed to help employees +9 +start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints throughout the employee lifecycle, including regular pulse and check in surveys. Insights from these surveys are valuable to understanding employees' needs, which helps us develop strategies to maintain positive employee well-being. The Company's annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of current and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the Company's employees’ respective geographic region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state-of-the-art fitness center, child care, and doggie day care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders in which we partner with top educational institutions. This program focuses on sharpening participants' business leadership capabilities needed to grow the Company's business and people leadership capabilities needed to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is critical to our future success. To enhance employees career development, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion: Wolverine Worldwide is committed to creating a diverse and inclusive culture where everyone feels a sense of belonging and being valued, and to building a team that is representative of everywhere the Company's employees work, live, and do business. The Company started this journey in 2020, focusing on creating a framework, establishing relationships, and working with expert outside partners to lay a foundation on which to build. +The Company's newly established internal DE&I office plans to continue and amplify the progress made to date to advance the Company's diversity, equity and inclusion goals. The Company encourages individuals to support these goals, including through internal Employee Resource Groups that connect, celebrate, and support communities across the organization. The Company offers employees a comprehensive diversity, equity, and inclusion learning program which includes learning about inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. Risk Factors +Business and Operational Risks +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +Consumer preferences and, as a result, the popularity of particular designs and categories of footwear and apparel, generally change over time. The Company’s success depends in part on its ability to maintain its brands’ positive images, and the ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. +10 +The Company’s efforts to maintain and improve its competitive position by monitoring and timely and appropriately responding to changes in consumer preferences, increasing brand awareness and enhancing the style, comfort and perceived value of its products may not be successful. If the Company is unable to maintain or enhance the images of its brands or if it is unable to timely and appropriately respond to new competition, changing consumer preferences and evolving footwear and apparel trends, consumers may consider its brands’ images to be outdated and associate its brands with styles that are no longer popular, which would decrease demand for its products. Such failures could result in loss of market share, reduced sales, excess inventory, trade name impairments, lower gross margin and other adverse impacts on the Company’s operating results. +Significant capacity constraints, production disruptions, inventory management, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company currently sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. As is common in the footwear and apparel industry, the Company does not have long-term contracts with its third-party manufacturers. The Company may experience difficulties with such manufacturers, including reductions in the availability of production capacity, failures to meet production deadlines, inventory management, failure to make products that meet applicable quality standards, or increases in labor and other manufacturing costs. The Company’s future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly interfere with the Company’s ability to source its products, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries. Other adverse developments, such as pandemics or other health crises, could cause significant production and shipping delays. Any of these events could have an adverse effect on the Company’s business, results of operations and financial position and, in particular, on the Company’s ability to meet customer demands and produce its products in a cost-effective manner. +The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor disputes or severe weather due to climate change. These issues have in the past and may in the future delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher costs, which could have an adverse impact on the Company’s business and financial condition. +Pandemics, including COVID-19 and other infectious disease outbreaks have had and could continue to have a material adverse effect on the company's business. +The Company's business could be adversely affected by infectious disease outbreaks. As we saw with the initial phase of the COVID-19 pandemic, outbreaks of disease can negatively affected the global economy, disrupt consumer spending and global supply chains, and significantly increased the volatility and disruption of financial markets both globally and in the U.S. These conditions following the onset of the COVID-19 pandemic led to a decline in discretionary spending by consumers that had a negative effect on the Company's financial condition and results of operations in 2020. Outbreaks of disease, and actions taken in response to an outbreak, have in the past materially negatively impacted, and could in the future materially negatively impact, the Company's workforce as well as its business, operations, and financial results in many ways, both directly and indirectly. Potential impacts to the Company’s business can be materially adversely affected by several factors related to a health crisis, including, but not limited to: +• The inability of employees, suppliers and other business providers to carry out tasks at ordinary levels of performance as a result of safety measures taken to limit the spread of infectious disease outbreaks. +• Required closures of retail stores operated by the Company or the Company's wholesale customers as well as decreased retail traffic due to social distancing measures, store closures, reduced operating hours, and/or changes in consumer behavior. +• Negative effects on consumer demand for our products as a result of decreased consumer spending due to general macroeconomic conditions, decreased disposable income and increased unemployment. +• Wholesale and distributor customer order cancellations due to lower consumer demand. +• Decline in the performance or financial condition of the Company’s major wholesale customers as a result of retail store closures, bankruptcy or liquidation. +• Consumer demand for our products may be adversely impacted by economic conditions. +11 +• Disruption to the operations of the Company’s distribution centers and its third-party manufacturers because of facility closures, reductions in operating hours, labor or material shortages, travel limitations or mass transit disruptions. +• Additional expenses related to mitigating the impact of a health crisis on regular operations. +• Supply chain disruption effecting the Company's ability to receive and distribute goods as well as increases in supply chain costs. +• Increased cyber security risk due to the increase in the number of employees working remotely. +• Volatility in the availability and prices for commodities for raw materials used in the Company's products and related inflationary pressures. +The occurrence of a health crisis may also affect the Company's operating and financial results in a manner that is not presently known to the Company or that the Company does not currently believe presents significant risks to its operations. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect independent factories where the Company’s goods are produced, shipping ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business, particularly if these disputes result in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may have an adverse effect on the Company’s business by potentially resulting in inventory shortages, delayed or canceled orders by customers and unanticipated inventory accumulation, and may negatively impact the Company’s results of operations and financial position. +If the Company is unable to hire qualified persons for, or retain and continue to develop, its workforce, its results of operations could be adversely affected. +The future success of the Company also depends on its ability to attract and retain qualified personnel, including in its product, eCommerce, and leadership teams. Competition for such personnel in the Company's industry is intense. If the Company fails to attract and retain such employees, it may not be successful in developing and implementing its business strategies. The Company’s ability to hire and retain qualified personnel may be affected by a number of factors, including: the ability to attract and motivate employees; the competition the Company faces from other companies in hiring and retaining qualified personnel; and the Company’s ability to offer employees remote work opportunities. If the Company is unable to hire and retain employees capable of performing at a high level, its business, including cash flows, results of operations, employee satisfaction, and reputation, could be adversely affected. +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers seeking more favorable terms or canceling orders, or the failure of wholesale customers to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success depends on its wholesale customers continuing to purchase its products. The Company does not typically have long-term contracts with its wholesale customers. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to rights of cancellation and rescheduling by the wholesale customers. In fiscal 2022, the Company experienced a higher rate of wholesale customer cancellations as retail customers sought to manage higher inventory levels and supply chain disruption. Failure to fill wholesale customers’ orders in a timely manner could harm the Company’s relationships with its wholesale customers. Furthermore, if any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products or brands, these wholesale customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company sells its products to wholesale customers and extends credit based on an evaluation of each wholesale customer’s financial condition. The financial difficulties of a wholesale customer could cause the Company to stop doing business with that wholesale customer or reduce its business with that wholesale customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in the channels of distribution, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +12 +The Company’s direct-to-consumer operations continue to require substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s direct-to-consumer operations, including its brick and mortar locations as well as its eCommerce and mobile channels, require substantial fixed investment in equipment and leasehold improvements, information systems, cyber-security infrastructure, inventory and personnel. The Company also has substantial operating lease commitments for retail space. Due to the high fixed-cost structure associated with the Company’s brick and mortar direct-to-consumer operations, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs. The success of its direct-to-consumer operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels, reductions in mall traffic and the Company’s ability to effectively develop its eCommerce and mobile channels. The Company has made and will continue to make significant investments in building technologies and digital capabilities. As omni-channel retailing continues to evolve, the Company’s customers are increasingly more likely to shop across multiple channels that work in tandem to meet their needs. The Company’s failure to successfully respond to these factors could adversely affect the Company’s direct-to-consumer business, as well as limit the Company's ability to successfully develop and expand the omni-channel experience for customers, damage its reputation and brands, and have an adverse effect on the Company’s results of operations and financial position. +The Company’s reputation and competitive position depend on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards relating to working conditions and other matters. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could be subject to negative publicity that could damage its reputation, negatively affect the value of its brands and subject the Company to legal risks. +In addition, the Company relies on its third-party licensees to help preserve the value of the Company’s brands. The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control the use by its licensees of its licensed brands. The misuse of a brand by a licensee could adversely affect the value of such brand. +Disruption of the Company’s eCommerce platform or other information technology systems could adversely affect the Company’s business. +The Company’s information technology systems, including its eCommerce platform, are critical to the operations of its business. Any future material interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business, including delays in product fulfillment and reduced efficiency in operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems, or with maintenance or adequate support of existing systems, could disrupt or reduce the efficiency of the Company’s operations. Disruption to the Company’s information technology systems may be caused by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events or disruptions. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may not be sufficient for all eventualities. Such failures or disruptions could prevent access to the Company’s online services and preclude store transactions. System failures and disruptions could also impede the manufacturing and shipping of products, transactions processing and financial reporting. Additionally, the Company may be adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +If the Company encounters problems affecting its logistics and distribution systems, its ability to deliver its products to the market could be adversely affected. +The Company relies on owned or independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistics and distribution systems include computer-controlled and automated equipment, which are subject to a number of risks related to computer system upgrades, data accuracy, security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. These operations could be interrupted by earthquakes, floods, fires or other natural disasters near its distribution centers or other events over which the Company has no control, such as pandemics. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects that could be caused by significant disruptions affecting its distribution facilities, such as the long-term loss of customers or an erosion of brand image. In addition, the Company’s distribution capacity depends upon the timely performance of services by third parties, including the transportation of products to and from the Company’s distribution facilities. If the Company +13 +encounters problems affecting its distribution system, its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be adversely affected. +The Company faces risks associated with its growth strategies including acquiring and disposing of businesses. +The Company has expanded its products and markets in part through strategic acquisitions, including the acquisition of the Sweaty Betty ® brand in the third quarter of fiscal 2021, and it may continue to do so in the future, depending on its ability to identify and successfully pursue suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering new markets in which the Company may not have prior experience; potential loss of significant customers or key personnel of the acquired business; not obtaining the expected benefits of the acquisition on a timely basis or at all; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business operations. Acquisitions may also cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. The Company may not be able to obtain financing for future acquisitions on favorable terms, making any such acquisitions more expensive. Any such financing may have terms that restrict the Company’s operations. The Company may not be able to successfully integrate the operations of any acquired businesses into its operations and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but still incur material costs in connection with an acquisition that it cannot recover. The failure to successfully integrate newly acquired businesses or achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +From time to time, the Company may seek to sell one or more businesses, or sell or license one or more brands. For example, as part of the Company’s strategy to invest in brands that offer the greatest opportu nities for growth, on January 10, 2024 the Company closed the sale of the global Sperry ® business. These transactions may involve challenges and risks. There can be no assurance that future divestitures will occur, or if a transaction does occur, there can be no assurance as to the potential value created by the transaction. The process of exploring strategic alternatives or selling a business could cause uncertainty and negatively impact our ability to attract, retain and motivate key employees. In addition, the Company expends costs and management resources to complete divestitures and manage post-closing arrangements. Any failures or delays in completing divestitures could have an adverse effect on the Company’s financial results and ability to execute its strategy. +The Company’s international operations may be affected by legal, regulatory, political and economic risks. +The Company’s ability to conduct business in new and existing international markets is subject to legal, regulatory, political and economic risks. These include: +• the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; +• unexpected changes in regulatory requirements; and +• new tariffs or other barriers in some international markets, including China. +The Company is also subject to general political and economic risks in connection with its international operations, including: +• political instability, war and terrorist attacks; +• differences in business culture; +• different laws governing relationships with employees and business partners; +• changes in diplomatic and trade relationships, including with China; and +• general economic fluctuations in specific countries or markets. +The Company cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the U.S. or foreign countries upon the import or export of the Company's products in the future, or what effect any of these actions would have, if any, on the Company’s business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have an adverse effect on the Company’s business in the future or may require the Company to exit a particular market or significantly modify the Company's current business practices. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Foreign currency exchange rate fluctuations affect the Company’s revenue and profitability. Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may +14 +also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +In addition, the Company's foreign subsidiaries purchase products in U.S. dollars and the cost of those products will vary depending on the applicable foreign currency exchange rate, which will impact the price charged to customers. The Company’s foreign distributors also purchase products in U.S. dollars and sell in local currencies, which impacts the price to foreign consumers and in turn, impacts the amount of royalties paid to the Company in U.S. dollars. When the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits denominated in foreign currencies are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. The Company may seek to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, but the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts as changes in the value of the U.S. dollar relative to other currencies could have an adverse effect on the Company’s business and results of operations. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility in, or a decline in, the Company's stock price. Decreases in the returns provided to our stockholders may ultimately adversely affect our business, results of operations and financial condition. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond the Company’s control, including the following: +• In the wholesale business, sales of footwear depend on orders from major customers, who may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• Changes to the Company's estimated annual tax rate which is based on projections of its domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• The Company's earnings are also sensitive to a number of factors that are beyond the Company’s control, including certain manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these specific and other general factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. In addition, various securities analysts follow the Company’s financial results and issue reports. These reports include information about the Company’s historical financial results as well as the analysts’ estimates of future performance. The analysts’ estimates are based upon their own opinions and are often different from the Company’s estimates or expectations. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +Decreases in the trading price of our stock may adversely affect the returns our stockholders realize from ownership of our stock. Such adverse effects, as well as other factors, may cause stockholders to take actions to involve themselves in the strategic direction and governance of the Company, including through private engagement, publicity campaigns, stockholder proposals and proxy contests. Responding to these actions can be costly and time-consuming and could divert the attention of our board and senior management from managing our operations and pursuing our business strategies. +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s results of operations depend on factors affecting consumer disposable income and spending patterns. These factors include general economic conditions, employment rates, business conditions, interest rates and tax policy in each of the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global, regional or local economic conditions, and how such conditions may impact them. Disposable income and consumer spending may decline due to inflation, recessionary economic cycles, high interest rates on consumer or business borrowings, restricted credit availability, high levels of unemployment or consumer debt, high tax rates, declines in consumer confidence or other factors. A decline in disposable income and consumer spending has adversely affected demand for the Company’s products, and could further adversely affect demand and Company's results of operations. If the Company reduces the prices of its products, offers additional promotions or increases marketing efforts due to decreases in consumer spending, the Company's profitability could decline. +The Company is subject to inflationary pressures, including increased costs in many aspects of our business, such as the cost of raw materials, transportation, and labor, which the Company may not be able to offset with cost savings or price increases on its +15 +products. If inflationary pressures continue, and the Company is unable to pass along price increases or further reduce costs, the Company's results of operations will be negatively impacted. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and direct-to-consumer footwear and apparel companies. Many of the Company’s competitors have greater resources and larger customer and consumer bases, are able, or elect, to sell their products at lower prices, or have greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and direct-to-consumer businesses. The Company’s competitors may own or license brands with greater name recognition; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences quickly will affect its future sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company markets and sells footwear and apparel suited for specific seasons, such as sandals and flats for the summer season and boots for the winter season. If the weather conditions for a particular season vary significantly from those typical for that season, such as an unusually cold and rainy summer or an unusually warm and dry winter, consumer demand for seasonally appropriate products could be adversely affected. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions permit the Company to sell seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. Consequently, the Company’s results of operations are dependent on future weather conditions and its ability to react to changes in weather conditions. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events forced closures of, or disrupted operations at, distribution centers maintained by the Company or third parties, the Company could incur higher costs and experience longer lead times to distribute its products on a timely basis to the Company’s retail stores, wholesale customers or eCommerce consumers. In addition, consumer traffic may be reduced as a result of extreme weather conditions and a decrease in shopping traffic could have an adverse effect on the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets affecting the Company's distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Changes in general economic conditions and/or the credit markets could have an adverse impact on the Company’s future results of operations and financial position. Negative trends in global economic conditions may adversely impact the Company's third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet consumers’ demands and, in turn, the Company's results of operations and financial position. +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Global political and economic uncertainty could adversely impact the Company’s business. +The Company’s products are marketed in approximately 170 countries and territories, and the Company sources a substantial majority of its products from foreign countries. Concerns regarding acts of terrorism or regional and international conflicts and concerns regarding public health threats, such as COVID-19, have created and may in the future create significant global economic and political uncertainties that may have adverse effects on consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. For example, conflicts in the Middle East, heightened tensions in the Red Sea and disruption of the Suez Canal shipping channels may cause supply chain disruptions and increase shipping costs. +In addition, an economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in markets in which the Company operates could have an adverse effect on the Company. The Company cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery, worldwide, in markets in which the Company operates, or in its industry. +16 +The Company is also subject to risks related to doing business in developing countries and economically volatile areas. These risks include social, political and economic instability; nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets and operations; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. In addition, commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Financial Risks +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand, adversely affect the timing of shipments to customers and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. +Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate inventory. In addition, inventory may become obsolete as a result of changes in consumer preferences over time. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +All of the Company’s products manufactured overseas and imported into the U.S., Canada, the European Union and other countries are subject to customs duties collected by customs authorities. The customs information submitted by the Company is routinely subject to review by customs authorities and any such review might result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions, including those due to changes in trade relations between the U.S. and other countries, may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products generally and adversely affect its sales and profitability. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products depends on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, transportation and shipping, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the footwear marketed by the Company. Increases in costs for commodities, equipment, services and materials used in production could have a negative impact on the Company’s results of operations and financial position. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have an adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on non-cash undistributed earnings that it intends to permanently reinvest in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have an adverse effect on its results of operations and financial position. +In addition, the Company’s income tax returns are subject to examination by the Internal Revenue Service and other domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. The final determination of any of these examinations could have an adverse effect on the Company’s results of operations and financial position. +17 +An impairment of goodwill or other intangibles could have an adverse impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect the Company’s results of operations, such as the impairments recorded associated with the Sweaty Betty ® trade name and goodwill in fiscal 2022. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company’s current level of indebtedness could adversely affect the Company by decreasing its business flexibility and increasing its borrowing costs. The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes contain customary restrictive covenants imposing operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its long-term best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the restrictive covenants in the Credit Agreement require the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and the Company may be unable to satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +Legal and Regulatory Risks +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive depends upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally for all of the Company’s lines of business. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent U.S. laws do. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if a court found it to be infringing on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is involved, either as a plaintiff or as a defendant, could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, then the Company may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. These agreements are subject to early termination for breach. These agreements also expire by their terms and as the agreements expire, the Company may be forced to stop selling the related products. Expiration or early termination by the licensor of any of these license agreements could have an adverse effect on the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations in the countries and territories in which the Company operates and other factors could increase the Company’s overall employment costs. The Company’s employment costs include costs relating to health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on a number of factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to the defined benefit +18 +plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks. +Companies are facing increasing and frequently evolving scrutiny globally from customers, regulators, investors, employees and other stakeholders related to their ESG practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, board and workforce diversity, labor conditions, human rights, and cybersecurity and data privacy. Third parties have also developed proprietary ratings or analyses of companies based on certain ESG metrics. Increased ESG-related compliance costs could result in increases to the Company’s overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or other stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. The Company’s ESG initiatives and goals may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change in the future. As we report on our ESG initiatives or goals, we may be subject to heightened reputational and operational risk and compliance costs related to these matters. Complying with increased regulations could increase the Company’s costs and adversely impact results of operations. The Company’s inability or failure to meet, or the perceived failure to meet, such stakeholders’ expectations, as well as adverse incidents, could negatively impact the Company’s stock price, results of operations, or reputation and increase the cost of capital. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. If the Company is unable to comply with bank and payment card industry standards, its operations could be adversely affected. +The protection of the Company’s customer, associate and Company data is critically important to the Company. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company’s customers and associates have a high expectation that the Company will adequately safeguard and protect their sensitive personal information. The Company's operations have become increasingly centralized and dependent upon automated information technology processes. In addition, a portion of the Company’s business operations is conducted electronically, increasing the risk of attack or interception that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to these networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities by third parties, exploitation of encryption technology, new data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of the Company’s networks, payment card terminals or other payment systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible adverse impact on its financial condition and results of operations. The Company's insurance coverage may be insufficient to cover all losses and would not remedy damage to the Company's reputation. In addition, employees may intentionally or inadvertently cause data or security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. In addition, if the Company is unable to comply with bank and PCI security standards, it may be subject to fines, restrictions and expulsion from card acceptance programs, which could adversely affect the Company’s direct-to-consumer operations. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air, soil and water, the management and disposal of solid and hazardous materials and wastes, employee exposure to hazards in the workplace, and the investigation and +19 +remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Various third parties have brought, and in the future could bring actions against the Company alleging health-related or other harm arising from non-compliance. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party, such as a prior owner or tenant. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may be named as a defendant from time to time in lawsuits and regulatory actions relating to its business. For example, regulatory actions, punitive class actions lawsuits and individual lawsuits have been filed against the Company alleging claims relating to property damage, remediation and human health effects, among other claims, arising from the Company’s operations, including its handling, storage, treatment, transportation and/or disposal of waste. These claims are discussed in more detail in Note 17 to the Company's Consolidated Financial Statements. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are expensive and may require that the Company devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law, as well as the Company’s certificate of incorporation and bylaws, could discourage, delay or prevent a merger, acquisition or other change in control of the Company that might benefit the Company's stockholders. These provisions are intended to provide the Company’s Board of Directors with continuity and also serve to encourage negotiations between the Company’s Board of Directors and any potential acquirer. Such provisions include a Board of Directors that is classified so that only one-third of directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to replace the majority of the Company's directors and take other corporate actions that may be beneficial to the Company’s stockholders. +The Company’s marketing programs, eCommerce initiatives and use of consumer information are governed by an evolving set of laws, industry standards and enforcement trends and unfavorable changes in those laws, standards or trends, or the Company’s failure to comply with existing or future laws, could negatively impact the Company’s business and results of operations. +The Company collects, maintains and uses data provided to it through its online activities and other consumer interactions in its business. The Company’s current and future marketing programs depend on its ability to collect, maintain and use this information, and its ability to do so is subject to certain contractual restrictions in third party contracts as well as evolving international, federal and state laws, industry standards and enforcement trends. The Company is subject to a broad array of applicable laws and other legal obligations relating to privacy, data protection and consumer protection, including those relating to the use of data for marketing purposes. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If the Company is not able to comply with any applicable requirements, the Company's reputation could be negatively impacted and the Company may be subject to proceedings or actions against it by governmental entities or others. +In addition, as data privacy and marketing laws change, the Company may incur additional costs to remain in compliance. If applicable data privacy and marketing laws become more restrictive at the federal or state level, the Company’s compliance costs may increase, and the Company’s ability to effectively engage customers via personalized marketing may decrease which could potentially impact growth. +Because the Company processes and transmits payment card information, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”), and card brand operating rules (“Card Rules”). The Standard is a comprehensive set of requirements for enhancing payment account data security that was developed by the PCI Security Standards Council to help facilitate the broad adoption of consistent data security measures. The Company is required by payment card network rules to comply with the Standard, and the Company’s failure to do so may result in fines or restrictions on its ability to accept payment cards. Under certain circumstances specified in the payment card network rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. Such activities may reveal that the Company has failed to comply with the Standard. If an audit, self-assessment or other test +20 +determines that the Company needs to take steps to remediate any deficiencies, the Company may be required to undertake remediation efforts, which may be costly or could result in periods of time during which the Company cannot accept payment cards. In addition, even if the Company complies with the Standard, there is no assurance that it will be protected from a security breach. Further, changes in technology and processing procedures may result in changes in the Card Rules. Such changes may require the Company to make significant investments in operating systems and technology that may impact business. Failure to keep up with changes in technology could impact growth opportunities. Failure to comply with the Standard or Card Rules could result in losing certification under the PCI standards and an inability to process payments. +The Company is also subject to U.S. and international data privacy and cybersecurity laws and regulations, which may impose fines and penalties for noncompliance and may have an adverse effect on the Company's operations. For example, the General Data Protection Regulation ("GDPR"), which applies in all European Union member states, introduced new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. GDPR increases our responsibility and potential liability in relation to personal data that we collect, process and transfer, and we have put in place additional mechanisms designed to ensure compliance with the new data protection rules. Any failure to comply with these rules and related national laws of European Union member states, could lead to government enforcement actions and significant penalties against us, and could adversely affect our business, financial condition, cash flows and results of operations. In addition, the California Consumer Privacy Act (“CCPA”) limits how we may collect and use personal data. The effects of the CCPA governs the Company's data processing practices and policies. Additionally, other states have adopted, or are considering enacting, similar laws that may affect the Company's data processing practices and policies. +The Company operates in many different international markets and could be adversely affected by violations of the FCPA and similar worldwide anti-corruption laws. +The FCPA and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The Company’s internal policies mandate compliance with these anti-corruption laws. Despite training and compliance programs, the Company's internal control policies and procedures may not protect it from reckless or criminal acts committed by its employees or agents. +The Company’s continued expansion internationally, including in developing countries, could increase the risk of FCPA violations in the future. Violations of these laws, or allegations of such violations, could disrupt the Company’s business and result in an adverse effect on the results of operations or financial condition. +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +The Company maintains a cybersecurity program guided by the ISO 27001 information security standard for information security management systems that is reasonably designed to protect its information, and that of its customers, against cybersecurity threats that may result in material adverse effects on the confidentiality, integrity, and availability of its information systems. +Internal Cybersecurity Team and Governance +Board of Directors +The Company’s Board, in coordination with the Audit Committee, oversees the Company’s enterprise risk management process, including the management of risks arising from cybersecurity threats. The Board has delegated the primary responsibility to oversee cybersecurity matters to the Audit Committee. The Audit Committee regularly reviews the measures implemented by the Company to identify and mitigate data protection and cybersecurity risks. As part of such reviews, the Audit Committee receives quarterly reports and presentations from members of the Company’s team responsible for overseeing the Company’s cybersecurity risk management, including the Chief Information Security Officer (CISO), Chief Information Officer (CIO), and members of the legal team, which address a wide range of topics including recent developments, evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, technological trends and information security considerations arising with respect to the Company’s peers and third parties. The other members of the Board attend these quarterly reports and presentations to the Audit Committee by members of management. The Company has protocols by which certain cybersecurity incidents that meet established reporting thresholds are escalated within the Company and, where appropriate, reported promptly to the Board and Audit Committee, as well as ongoing updates regarding any such incident until it has been addressed. +21 +Management +At the management level, the CISO, who has extensive cybersecurity knowledge and skills gained from over 16 years of work experience at the Company and elsewhere, heads the cross-functional team responsible for implementing, monitoring, and maintaining cybersecurity and data protection practices across the business and reports directly to the CIO, who reports directly to the Chief Executive Officer. The CISO receives reports on cybersecurity threats from a number of experienced information security team members, each of whom is responsible for various parts of the business on an ongoing basis and, in conjunction with management, regularly reviews risk management measures implemented by the Company to identify and mitigate data protection and cybersecurity risks. The CISO works closely with the legal team to oversee compliance with legal, regulatory and contractual security requirements. +Internal Cybersecurity Team +The Internal Cybersecurity Team, led by the CISO, is responsible for the implementation, monitoring, and maintenance of the cybersecurity and data protection practices across the Company. The CISO is supported by experienced information security team members, each of whom is supported by a team of trained cybersecurity professionals. The individuals who report directly to the CISO include the Director of Cyber Security, who oversees the cybersecurity engineers, security operations center, and identity & access management team, and the Privacy and Compliance Manager, who oversees the global privacy and compliance analysts. +In addition to internal cybersecurity capabilities, the Company also at times engages consultants or specialists to assist with assessing, identifying, and managing cybersecurity risks. +Risk Management and Strategy +The Company employs systems and processes designed to oversee, identify, and reduce the potential impact of a security incident at a third-party vendor, service provider or customer or otherwise implicating the third-party technology and systems the Company uses. +The Company maintains a Privacy Policy that describes the personal information that it collects about its customers, including how the Company may use such information and when it shares such information with third parties. +The Company conducts annual cyber-risk mitigation exercises including awareness outreach, annual IT Security Awareness training, monthly phishing tests, and a variety of ongoing vulnerability scans. Over the past two years, the Company has implemented multiple new security tools designed to provide visibility and controls allowing the cybersecurity team to safeguard data against theft or loss. +The Company maintains various role-based access controls to safeguard data and systems. Data center assets are protected and monitored by badged key systems and video surveillance. Access is periodically reviewed and updated. +In addition, an external consultant in conjunction with the Company conducted a cybersecurity gap assessment in November 2023 to review and confirm that the Company has appropriate measures in place to assess, identify and manage cybersecurity risks, and the Company is implementing the recommendations made as a result of the gap assessment. +The cybersecurity, legal, and Executive Leadership teams also participated in a data security incident tabletop exercise in December 2023 to simulate responses to a ransomware attack and use the findings to improve the Company’s processes and technologies. +The Company maintains cybersecurity insurance coverage to help defray any financial losses suffered by the Company in the event of an information security breach. The Company's insurance coverage may not cover all cybersecurity incidents the Company experiences or all losses the Company incurs as a result. +Incident Response +The Company has adopted an Incident Response Plan (the “IRP”) that provides a standardized framework for responding to security incidents. The IRP sets out a coordinated approach to investigating, containing, documenting and mitigating incidents, including reporting findings and keeping senior management and other key stakeholders informed and involved as appropriate. The IRP applies to all Company personnel (including third-party contractors, vendors and partners) that perform functions or services that require access to secure Company information, and to all devices and network services that are owned or managed by the Company. +Material Cybersecurity Risks, Threats & Incidents +22 +The Company relies on information technology and third party vendors to support its operations, including its secure processing of personal, confidential, sensitive, proprietary and other types of information. The Company and its vendors may not be able to protect all of their respective information systems, and such incidents may lead to reputational harm, revenue and client loss, legal actions, statutory penalties, among other consequences. Risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected the Company, including its business strategy, results of operations or financial condition. While the Company has not experienced any material cybersecurity incidents, there can be no guarantee that it will not be the subject of future successful attacks, threats or incidents. +Item 2. Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 307,000 square feet in Rockford, Michigan, as well as leased facilities of approximately 84,700 square feet in Waltham, Massachusetts and 80,000 square feet in the United Kingdom. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; a leased distribution facility of approximately 520,000 square feet in Louisville, Kentucky; a leased distribution center of approximately 468,000 square feet in Howard City, Michigan; a leased distribution center of approximately 242,000 square feet in Ontario, Canada and a leased distribution center of approximately 125,000 square feet in Heerhugowaard, Netherlands. +The Company also leases or owns offices, showrooms and other facilities throughout the U.S., Canada, the United Kingdom, continental Europe, Hong Kong and China to meet its operational requirements. In addition, the Company operates 166 retail stores primarily through leases with various third-party landlords in the U.S., United Kingdom, and Canada that collectively occupy approximately 388,000 square feet. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. For a discussion of legal matters, see Note 17 to the Company's Consolidated Financial Statements. +Item 4. Mine Safety Disclosures +Not applicable. +Supplemental Item. Information about our Executive Officers +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of January 31, 2024. The information provided below the table lists the business experience of each such Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, at the pleasure of management. +Name Age Positions held with the Company +Christopher E. Hufnagel 51 President and Chief Executive Officer +Amy M. Klimek 50 Executive Vice President, Global Human Resources +Reginald M. Rasch 53 Senior Vice President, General Counsel and Secretary +Isabel Soriano 53 President, International +Michael D. Stornant 57 Executive Vice President, Chief Financial Officer and Treasurer +James D. Zwiers 56 Executive Vice President and President, Global Operations Group +Christopher E. Hufnagel has served the Company as Chief Executive Officer since August 2023, and as President since May 2023. From November 2022 through May 2023, he was the President, Active Group. From September 2019 through November 2022 he served as President of the Merrell ® brand. From July 2018 through September 2019, he served as President, Cat ® Footwear. From January 2013 through July 2018, he served as Senior Vice President and Head of Corporate Strategy. +Amy M. Klimek has served the Company as Executive Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. +Reginald M. Rasch has served the Company as Senior Vice President, General Counsel and Secretary since January 2023. From May 2021 through November 2022, he was the Chief Legal Officer and Corporate Secretary of Party City Holdco Inc., a publicly traded party goods company. Mr. Rasch was employed by Rakuten, a global technology conglomerate, from 2005 to May 2021, where he was the Rakuten Americas Head of Legal and Secretary from 2016 to May 2021. +23 +Isabel Soriano has served the Company as President, International since June 2021. From June 2018 to May 2021, she served as Vice President and Managing Director of EMEA. From April 2014 to June 2018, she served as Vice President and General Manager for Vans, Timberland and Kipling in South America at VF Corporation, a publicly traded footwear and apparel retailer. +Michael D. Stornant has served the Company as Executive Vice President, Chief Financial Officer and Treasurer since June 2015. From January 2013 through June 2015, he served as Vice President, Corporate Finance. +James D. Zwiers has served the Company as Executive Vice President since February 2017 and President, Global Operations Group since January 2021. From February 2016 through February 2017, he served as President, Wolverine Outdoor & Lifestyle Group. From June 2014 through February 2016, he served as Senior Vice President and President, International Group . +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The number of stockholders of record on February 9, 2024, was 654. +A quarterly dividend of $0.10 per share was declared on February 7, 2024. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2024. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the Standard & Poor’s 1500 Index and the Standard & Poor’s 1500 Consumer Durables & Apparel Index, assuming an investment of $100 at the beginning of the period indicated. The Company is part of both the Standard & Poor’s 1500 Index and the Standard & Poor’s 1500 Consumer Durables & Apparel Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +Five-Year Cumulative Total Return Summary +24 +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2023. +Issuer Purchases of Equity Securities +Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (October 1, 2023 to November 4, 2023) +Common Stock Repurchase Program (1) +— $ — — $ — +Employee Transactions (2) +2,269 $ 7.93 +Period 11 (November 5, 2023 to December 2, 2023) +Common Stock Repurchase Program (1) +— $ — — $ — +Employee Transactions (2) +3,897 $ 8.40 +Period 12 (December 3, 2023 to December 30, 2023) +Common Stock Repurchase Program (1) +— $ — — $ — +Employee Transactions (2) +— $ — +Total for the Fourth Quarter Ended December 30, 2023 +Common Stock Repurchase Program (1) +— $ — — $ — +Employee Transactions (2) +6,166 $ 8.22 +(1) On September 11, 2019, the Company’s Board of Directors approved a common stock repurchase program that authorized the repurchase of $400.0 million of common stock over a four-year period, incremental to the $113.4 million available as of that date for repurchases under the previous program. Since that date, the Company repurchased $146.9 million of common stock. The annual amount of any stock repurchases is restricted under the terms of the Company's amended senior credit facility and senior notes indenture. The common stock repurchase program expired on September 11, 2023. +(2) Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +Item 6. Reserved +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s strategic vision is to build and grow high-energy footwear, apparel and accessories brands that inspire and empower consumers to explore and enjoy their active lives. The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global direct-to-consumer footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 170 countries and territories at December 30, 2023, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At December 30, 2023, the Company oper ated 166 retail stores in the U.S., United Kingdom, and Canada an d 56 direct-to-consumer eCommerce sites. +Effective February 4, 2023, the Company completed the sale of the Keds ® business. +In the third quarter of fiscal 2023, the Company entered into a multi-year licensing agreement of the Hush Puppies ® brand in the United States and Canada. In addition, the Company completed the sale of Hush Puppies ® trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau. +25 +Effective August 23, 2023, the Company completed the sale of the U.S. Leathers business and effective December 28, 2023, the Company completed the sale of the Asia-based Leathers business. See Note 20 to the Company's Consolidated Financial Statements for further discussion. +The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2023 and 2022. A discussion of a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2022 and 2021 has been omitted from this Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023. +Known Trends Impacting Our Business +Macroeconomic conditions and supply chain disruptions continue to adversely affect the Company’s business results. During the third quarter of 2022, inventory transit times improved ahead of plan, resulting in challenges managing the timing of inventory flow, which caused the Company to have excess inventory. Elevated inventory levels have resulted, and continue to result, in storage and processing capacity pressures at the Company’s U.S. distribution centers. The Company has incurred additional inventory carrying costs including costs for outside storage and other inventory related holding costs. The Company decreased inventory purchases and increased promotional activity during the fourth quarter of 2022 and fiscal year 2023 to reduce excess inventory. These actions caused inventories to decline in fiscal year 2023 by $371.6 million, compared to the fourth quarter of 2022. As of the end of fiscal year 2023, the Company had $30.9 million of inventory in-transit, which represents a decrease in inventory of $115.9 million as compared to the end of the fourth quarter of 2022. As inventory transit and product purchase timelines continue to move towards pre-pandemic levels, the Company expects that the flow of seasonal product and our inventory levels will normalize by the end of fiscal 2024. +Inflation and other macroeconomic pressures in the U.S. and the global economy such as rising interest rates, energy prices and recession fears are creating a complex and challenging retail environment for the Company and its customers as consumers generally seek discounted merchandise and reduce discretionary spending, which in turn impacts wholesale customer orders. Inflationary pressures are increasing logistics costs, including labor costs, raw materials costs and product input costs, which continue to adversely affect the Company’s results. These increased costs, combined with higher promotional activity, contributed to gross margin contraction of 100 basis points for fiscal year 2023 compared to fiscal year 2022. These impacts were partially offset by selective price increases taken in prior quarters by certain brands and products. The Company expects to continue to evaluate future pricing of its products. In addition, the strengthening of the U.S. dollar relative to other major currencies negatively impacted the Company’s financial results in fiscal year 2023. +Please refer to Item 1A, “Risk Factors” for a more complete discussion of the risks the Company encounters in our business. +2023 FINANCIAL OVERVIEW +• Revenue was $2,242.9 million for 2023, representing a decrease of 16.5% compared to the prior year's revenue of $2,684.8 million. +• Gross margin for 2023 was 38.9%, compared to 39.9% in 2022. +• The effective tax rate in 2023 was 70.7%, compared to 25.2% in 2022. +• Diluted loss per share in 2023 was $0.51, compared to diluted loss per share of $2.37 in 2022. +• The Company declared cash dividends of $0.40 per share in 2023 and 2022. +• Cash flow provided by operating activities was $121.8 million in 2023 and cash flow used in operating activities was $178.9 million in 2022. +• Compared to the prior year, inventory decreased $371.6 million, or 49.9%, as of year-end. +26 +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +(In millions, except per share data) 2023 2022 Percent Change +Revenue +$ 2,242.9 $ 2,684.8 (16.5) % +Cost of goods sold +1,370.4 1,614.4 (15.1) % +Gross profit +872.5 1,070.4 (18.5) % +Selling, general and administrative expenses +856.2 906.4 (5.5) % +Gain on sale of businesses, trademarks and long-lived assets (90.4) (90.0) (0.4) % +Impairment of long-lived assets 185.3 428.7 (56.8) % +Environmental and other related costs (income), net of recoveries (10.4) 33.7 (130.9) % +Operating profit (loss) (68.2) (208.4) 67.3 % +Interest expense, net +63.5 47.3 34.2 % +Other expense (income), net 2.5 (2.8) 189.3 % +Earnings (loss) before income taxes (134.2) (252.9) 46.9 % +Income tax expense (benefit) (95.0) (63.8) (48.9) % +Net earnings (loss) (39.2) (189.1) 79.3 % +Less: net earnings (loss) attributable to noncontrolling interests 0.4 (0.8) 150.0 % +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ (39.6) $ (188.3) 79.0 % +Diluted earnings (loss) per share $ (0.51) $ (2.37) 78.5 % +REVENUE +Revenue was $2,242.9 million for 2023, representing a decline of 16.5% compared to the prior year's revenue of $2,684.8 million. The change in revenue reflected a 8.3% decline from the Active Group, an 18.6% decline from the Work Group and a 38.3% decline from Other. The Active Group's revenue decline was driven by a decrease of $88.4 million from Merrell ® , $25.3 million from Chaco ® , $9.6 million from Saucony ® and $7.8 million from Sweaty Betty ® . The Work Group’s revenue decline was driven primarily by a decrease of $46.3 million from Wolverine ® , $40.2 million from Cat ® , $15.9 million from Harley-Davidson ® and $6.5 million from Bates ® . The decline in Other revenue was primarily driven by a decrease of $87.0 million from Sperry ® , $84.7 million from Keds ® and $21.6 million from the performance leathers business. International revenue represented 45.7%, and 41.8% of total reported revenues in 2023 and 2022, respectively. Changes in foreign exchange rates increased revenue by $3.4 million during 2023. Direct-to-consumer revenue decreased by $109.4 million, or 15.8% during 2023 compared to 2022. +GROSS MARGIN +For 2023, the Company’s gross margin was 38.9%, compared to 39.9% in 2022. The gross margin decrease was primarily driven by unfavorable supply chain costs in the Company’s wholesale channel and unfavorable average selling price and product costs changes in the Company’s direct-to-consumer channel. +OPERATING EXPENSES +Operating expenses decreased $338.1 million in 2023, to $940.7 million. The decrease was driven by lower impairment of long-lived assets ($243.4 million), the gain on the sale of businesses, trademarks, and long-lived assets ($90.4 million), lower advertising costs ($51.4 million), lower environmental and other related costs, net of recoveries ($44.1 million), lower incentive compensation costs ($22.1 million), lower selling costs ($9.6 million), lower product development costs ($4.8 million), lower distribution costs ($4.7 million), and lower Sweaty Betty ® integration costs ($2.0 million), partially offest by the prior year gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), higher reorganization costs ($36.8 million), higher divestiture costs ($5.1 million), and higher general and administrative costs ($2.1 million). Environmental and other related costs were $8.4 million and $56.3 million in 2023 and 2022, respectively. See Note 17 to the Company's Consolidated Financial Statements for further discussion of environmental remediation costs. +27 +INTEREST, OTHER AND TAXES +Net interest expense was $63.5 million in 2023 compared to $47.3 million in 2022. Interest expense increased in the current year due to higher average principal balances of variable rate debt and higher average interest rates on the Company’s variable rate debt. +Other expense was $2.5 million in 2023 compared to other income of $2.8 million in 2022. +The effective tax rate in 2023 was 70.7%, compared to 25.2% in 2022. In 2023 the Company recognized more tax benefits compared to 2022 primarily related to the generation and utilization of a capital loss. The tax benefits increased the tax benefit recognized from the pretax loss, resulting in a higher effective tax rate in 2023. +REPORTABLE SEGMENTS +The Company’s portfolio of brands are organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. Prior to the fourth quarter of 2023, Sperry ® , Keds ® , and Hush Puppies ® financial results were reported in the Lifestyle Group. The Lifestyle Group is no longer a reportable segment based upon how the Chief Operating Decision Maker, the Company's Chief Executive Officer, allocates resources to and assesses performance of the Company's operating segments. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segment results for years 2023 and 2022 are as follows: +Fiscal Year +(In millions) 2023 2022 Change Percent Change +REVENUE +Active Group $ 1,439.1 $ 1,570.2 $ (131.1) (8.3) % +Work Group 480.6 590.5 (109.9) (18.6) % +Other +323.2 524.1 (200.9) (38.3) % +Total +$ 2,242.9 $ 2,684.8 $ (441.9) (16.5) % +OPERATING PROFIT (LOSS) +Active Group $ 140.3 $ 198.4 $ (58.1) (29.3) % +Work Group 58.1 102.5 (44.4) (43.3) % +Other +32.8 59.9 (27.1) (45.2) % +Corporate +(299.4) (569.2) 269.8 47.4 % +Total +$ (68.2) $ (208.4) $ 140.2 67.3 % +Further information regarding the reportable segments can be found in Note 18 to the Company's Consolidated Financial Statements. +Active Group +The Active Group’s revenue decreased $131.1 million, or 8.3%, in 2023 compared to 2022. The revenue decline was driven by a decrease of $88.4 million from Merrell ® , $25.3 million from Chaco ® , $9.6 million from Saucony ® and $7.8 million from Sweaty Betty ® . The Merrell ® decrease was primarily due to softer consumer demand in wholesale and eCommerce channels. The Chaco ® decrease was primarily the result of softer consumer demand and high inventory levels at retail customers. The Saucony ® decrease was primarily due to high inventory levels at retail customers, which adversely impacted order patterns. The +28 +Sweaty Betty ® decrease was primarily due to softer consumer demand in direct-to-consumer sales channels across the U.K., Ireland, and U.S. markets reflecting the challenging economic environment. +The Active Group’s operating profit decreased $58.1 million, or 29.3%, in 2023 compared to 2022. The operating profit decrease was due to revenue decreases and a 200 basis point decrease in gross margin partially offset by a $26.9 million decrease in selling, general and administrative costs. The decrease in gross margin in the current year period was primarily due to increased closeout sales and higher promotional activity in the Company’s wholesale and direct-to-consumer channels. The decrease in selling, general and administrative expenses in 2023 is primarily due to lower advertising costs, selling expenses and employee costs. +Work Group +The Work Group’s revenue decreased $109.9 million, or 18.6%, in 2023 compared to 2022. The revenue decline was primarily driven by a decrease of $46.3 million from Wolverine ® , $40.2 million from Cat ® , $15.9 million from Harley-Davidson ® and $6.5 million from Bates ® . The Wolverine ® decrease was primarily due to softer consumer demand in U.S. wholesale and high inventory levels at retail customers resulting in a continually heightened promotional environment. The Cat ® decrease was primarily due to softer consumer demand across all regions. The Harley-Davidson ® decrease was primarily due to lower at-once shipments and declines in top dealer accounts. The Bates ® decrease was primarily due to softer consumer demand in U.S. wholesale and direct-to-consumer channels. +The Work Group’s operating profit decreased $44.4 million, or 43.3%, in 2023 compared to 2022. The operating profit decrease was due to revenue decreases and a 180 basis point decrease in gross margin, partially offset by a $2.6 million decrease in selling, general and administrative costs. The decrease in gross margin in the current year was due to increased closeout sales, product mix and unfavorable average selling price and higher promotional activity in the Company’s direct-to-consumer channel. The decrease in selling, general and administrative expenses in 2023 was primarily due to lower advertising costs and selling expenses. +Other +Other revenue decreased $200.9 million, or 38.3%, in 2023 compared to 2022. The revenue decline was driven by a decrease of $87.0 million from Sperry ® , $84.7 million from Keds ® and $21.6 million from the performance leathers business. The Sperry ® decrease was primarily driven by softer consumer demand in U.S. wholesale and softer boot sales in the direct-to-consumer channels. The Keds ® decrease is due to the divestiture of the business effective February 4, 2023. The performance leathers business decrease is due to the divestiture of the U.S. leathers business effective August 23, 2023. +Other operating profit decreased $27.1 million, or 45.2%, in 2023 compared to 2022. The operating profit decrease was due to revenue decreases partially offset by a 30 basis point increase in gross margin and a $50.9 million decrease in selling, general and administrative costs. The increase in gross margin in the current year period was primarily due to the divestiture of the lower margin Keds ® and performance leathers businesses. The decrease in selling, general and administrative expenses in the current year period was primarily due to lower advertising costs, selling expenses and the divestiture of the Keds ® and performance leathers businesses. +Corporate +Corporate expenses decreased $269.8 million in 2023 compared to 2022 primarily due to lower impairment of long-lived and intangible assets ($243.4 million), the gain on sale of businesses, trademarks, and long-lived assets ($90.4 million), lower environmental and other related costs ($44.1 million), lower incentive compensation costs ($14.5 million), and lower employee costs ($11.4 million), partially offset by the 2022 gain recorded on the sale of the Champion trademarks for footwear in the United States and Canada ($90.0 million), and higher reorganization activities ($36.8 million). +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) 2023 2022 +Cash and cash equivalents (1) +$ 184.6 $ 135.5 +Debt 920.8 1,158.0 +Available Revolving Facility (2) +688.4 569.3 +(1) Cash and cash equivalents at the end of the year in the Consolidated Statements of Cash Flows includes $5.6 million and $4.0 million of cash and cash equivalents that are classified as held for sale as of December 30, 2023 and December 31, 2022, respectively, that are not included in cash and cash equivalents in the Consolidated Balance Sheets. +29 +(2) Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Facility. +Liquidity +Cash and cash equivalents of $184.6 million as of December 30, 2023 were $49.1 million higher compared to December 31, 2022. The increase is due primarily to proceeds from the sale of businesses, trademarks, long-lived assets and other assets of $188.9 million, cash provided by operating activities of $121.8 million and contributions from noncontrolling interests of $31.2 million, partially offset by net revolver payments of $120.0 million, long-term debt payments of $118.3 million, cash dividends paid of $32.6 million, additions to property, plant, and equipment of $14.6 million and shares acquired related to employee stock plans of $5.8 million. The Company had $688.4 million of borrowing capacity available under the Revolving Facility as of December 30, 2023. Cash and cash equivalents located in foreign jurisdictions totaled $161.8 million as of December 30, 2023. +Cash flow from operating activities is expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends and for general corporate purposes. +The Company did not repurchase shares during 2023 and repurchased $81.3 million of shares in 2022. The common stock repurchase program expired in September 2023. +A detailed discussion of environmental remediation costs is found in Note 17 to the Company's Consolidated Financial Statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual affected site. As of December 30, 2023, the Company has a reserve of $57.9 million, of which $31.3 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $26.6 million recorded in other liabilities and expected to be paid over the course of up to 25 years. The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. +Note 17 to the Company's Consolidated Financial Statements also includes a detailed discussion of environmental litigation matters. As of December 30, 2023, the Company had recorded liabilities of $2.7 million for certain of these environmental litigation matters which are recorded as other accrued liabilities in the consolidated condensed balance sheets. +Developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +The Company expects to meet its contractual obligations through its customary sources of liquidity in the normal course of business, such as cash from operating activities, and believes it has the financial resources to satisfy these contractual obligations. The Company had the following contractual obligations due by period at December 30, 2023: +(In millions) Total Less than +1 year 1-3 years 3-5 years More than +5 years +Long-term debt obligations (1) +$ 1,088.7 $ 352.7 $ 127.2 $ 44.0 $ 564.8 +Operating lease obligations +210.7 35.2 58.8 44.4 72.3 +Purchase obligations (2) +241.8 241.8 — — — +Supplemental Executive Retirement Plan +45.7 4.1 9.0 9.4 23.2 +Municipal water improvements (3) +25.5 12.2 10.4 2.9 — +TCJA transition obligation +21.0 9.3 11.7 — — +Total (4) +$ 1,633.4 $ 655.3 $ 217.1 $ 100.7 $ 660.3 +(1) Includes principal and interest payments on the Company’s long-term debt. Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 30, 2023. Actual cash outflows may differ significantly due to changes in underlying interest rates. +(2) Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) Under the terms of a Consent Decree resolving certain civil and regulatory actions, the Company is obligated to contribute towards the costs of extending municipal water lines, developing a replacement wellfield and making certain improvements to Plainfield Township’s existing water treatment plant, all subject to an aggregate cap of $69.5 million. During 2023 and 2022, the Company made payments of $6.4 million and $15.0 million towards the total cap, respectively. Due to the +30 +uncertainty of the timing and amounts related to the Company's other environmental remediation costs, they have been excluded from this table. See Note 17 to the Company's Consolidated Financial Statements for additional information. +(4) The total amount of unrecognized tax benefits on the consolidated balance sheet at December 30, 2023 is $2.6 million. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Financing Arrangements +The Company’s credit agreement provides for a term loan A facility (the “Term Facility”) and for a revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”). The maturity date of the loans under the Senior Credit Facilities is October 21, 2026. The credit agreement provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. The Revolving Facility allows the Company to borrow up to an aggregate amount of $1.0 billion. +The Company’s $550.0 million 4.0% senior notes issued on August 26, 2021 are due on August 15, 2029. Related interest payments are due semi-annually. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +As of December 30, 2023, the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company’s debt at December 30, 2023 totaled $920.8 million, compared to $1,158.0 million at December 31, 2022. The Company expects to use the current borrowings to fund organic growth initiatives, pay dividends and for general corporate purposes. The decreased debt position is due to lower borrowings under the Revolving Facility resulting from operating cash inflows and proceeds from divestitures. +Cash Flows +The following table summarizes cash flow activities: +Fiscal Year Ended +(In millions) December 30, +2023 December 31, +2022 +Net cash provided by (used in) operating activities 121.8 (178.9) +Net cash provided by investing activities 171.6 54.6 +Net cash provided by (used in) financing activities (246.3) 107.1 +Additions to property, plant and equipment (14.6) (36.5) +Depreciation and amortization 35.1 34.6 +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during 2023 was higher compared to 2022, due primarily to a decrease in net working capital representing a source of cash of $168.0 million. Working capital balances were favorably impacted by a decrease in inventories of $286.5 million and a decrease in accounts receivable of $2.8 million, partially offset by an increase in other operating assets of $16.8 million, a decrease in accounts payable of $65.6 million and a decrease in other operating liabilities of $36.6 million. Operating cash flows included non-cash add back for the impairment of long-lived assets of $185.3 million, depreciation and amortization expense adjustment of $35.1 million, stock-based compensation expense adjustment of $15.2 million, deferred income tax adjustment of $95.8 million, gain on sale of business, trademarks and long-lived assets of $90.4 million, environmental and other related costs, net of cash payments and recoveries received cash outflow of $55.1 million, and pension expense adjustment of $0.7 million. +31 +Investing Activities +The Company made capital expenditures of $14.6 million and $36.5 million in years 2023 and 2022, respectively, for building improvements, eCommerce site enhancements, new retail stores, distribution operations improvements and information system enhancements. The current year activity includes proceeds from the sale of businesses and trademarks of $188.9 million. +Financing Activities +The current year debt activity includes net payments under the Revolving Facility of $120.0 million and payments on long-term debt of $118.3 million. The Company paid $5.8 million and $7.7 million in 2023 and 2022, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans. The Company received $31.2 million and $7.0 million from noncontrolling interests in 2023 and 2022, respectively. +The Company declared cash dividends of $0.40 per share in each of 2023 and 2022 . Dividends paid totaled $32.6 million and $32.8 million for 2023 and 2022 , respectively. A quarterly dividend of $0.10 per share was declared on February 7, 2024 to shareholders of record on April 1, 2024. +NEW ACCOUNTING STANDARDS +See Note 2 to the Company's Consolidated Financial Statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +The preparation of the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s Consolidated Financial Statements. Significant accounting policies are summarized in Note 1 to the Company's Consolidated Financial Statements. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consist of wholesale revenue and direct-to-consumer revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the purchase, shipment or delivery of branded products to the customer. Direct-to-consumer includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the direct-to-consumer channel. +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to +32 +which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the year ended December 30, 2023 related to the Company’s contract liabilities was nominal. +Inventory +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished product inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished product inventories in foreign countries and certain domestic finished product inventories. The average cost of inventory is used for finished product inventories of the Company’s direct-to-consumer business and Sweaty Betty ® inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Business Combinations +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" section below. +Goodwill and Indefinite-Lived Intangibles +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions such as a discount rate and expected future operating performance, which includes forecasted revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin and cost of capital, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company records an impairment charge equal to the excess of the recorded goodwill over the fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible assets are less than their carrying value. The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +33 +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. In the fourth quarter of 2022, after completion of the annual impairment testing, the Company recorded a $48.4 million impairment charge for Sweaty Betty ® goodwill. The Company did not recognize any impairment charges for goodwill during 2023 and 2021. In the third quarter of 2023, after completion of impairment testing, the Company recorded a $38.3 million impairment charge for the Sperry ® trade name. In the fourth quarter of 2022, the Company recognized impairment charges of $191.0 million for the Sperry ® trade name and $189.3 million for the Sweaty Betty ® trade name. No impairment charges were recognized for the Company's intangible assets during 2021. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion of the Sweaty Betty ® goodwill impairment and the Sweaty Betty ® and Sperry ® trade name impairments. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Refer to Note 17, “Litigation and Contingencies” for additional discussion on estimated environmental remediation costs. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters as described in Note 17 to the Company's Consolidated Financial Statements. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17 “Litigation and Contingencies”. +Retirement Benefits +The determination of the obligation and expense for retirement benefits depends upon the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans' expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 5.30% at December 30, 2023, compared to 5.56% at December 31, 2022. Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.88% and 6.87% for fiscal 2023 and 2022, respectively. This rate is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. The Company evaluates the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on +34 +factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in the Company’s assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +The Company intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on that amount of foreign unremitted earnings. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. The Company does not believe that there has been a material change in the nature of the Company’s primary market risk exposures, including the categories of market risk to which the Company is exposed and the particular markets that present the primary risk of loss to the Company. As of the date of this Annual Report on Form 10-K, the Company does not know of any material change in the near-term in the general nature of its primary market risk exposure. +Under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging , the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, the United Kingdom, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At December 30, 2023 and December 31, 2022, the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $269.0 million and $334.2 million, respectively, with maturities ranging up to 531 and 524 days, respectively. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations and comprehensive income. +35 +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. At December 30, 2023, a weaker U.S. dollar compared to certain foreign currencies increased the value of these investments in net assets by $16.8 million from their value at December 31, 2022. At December 31, 2022, a stronger U.S. dollar compared to foreign currencies decreased the value of these investments in net assets by $76.3 million from their value at January 1, 2022. +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on the Incremental Term Loan borrowings and any borrowings under the Revolving Facility. The Company’s total variable-rate debt was $376.7 million at December 30, 2023 and the Company held a forward-dated interest rate swap agreement, denominated in U.S. dollars that will effectively convert $75.3 million of this amount to fixed-rate debt. The interest rate swap derivative instrument is held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be a net asset of $1.8 million as of December 30, 2023. As of December 30, 2023, the weighted-average interest rate on the Company’s variable-rate debt, net of the impact of the interest rate swap, was 6.18%. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $3.0 million. The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +36 +Item 8. Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +38 +Consolidated Statements of Comprehensive Income (Loss) +39 +Consolidated Balance Sheets +40 +Consolidated Statements of Cash Flows +41 +Consolidated Statements of Stockholders' Equity +43 +Note 1. Summary of Significant Accounting Policies +45 +Note 2. New Accounting Standards +50 +Note 3. Earnings Per Share +51 +Note 4. Goodwill and Other Intangibles +51 +Note 5. Accounts Receivable +52 +Note 6. Revenue From Contracts With Customers +53 +Note 7. Inventories +54 +Note 8. Debt +55 +Note 9. Property, Plant and Equipment +56 +Note 10. Leases +56 +Note 11. Derivative Financial Instruments +57 +Note 12. Stock-Based Compensation +58 +Note 13. Retirement Plans +60 +Note 14. Income Taxes +63 +Note 15. Accumulated Other Comprehensive Income (Loss) +67 +Note 16. Fair Value Measurements +67 +Note 17. Litigation and Contingencies +68 +Note 18. Business Segments +70 +Note 19. Variable Interest Entities and Related Party Transactions +72 +Note 20. Assets and Liabilities Held for Sale +73 +Note 21. Subsequent Event +74 +Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +77 +37 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) 2023 2022 2021 +Revenue $ 2,242.9 $ 2,684.8 $ 2,414.9 +Cost of goods sold 1,370.4 1,614.4 1,385.0 +Gross profit 872.5 1,070.4 1,029.9 +Selling, general and administrative expenses 856.2 906.4 817.8 +Gain on sale of businesses, trademarks and long-lived assets ( 90.4 ) ( 90.0 ) — +Impairment of long-lived assets 185.3 428.7 — +Environmental and other related costs (income), net of recoveries ( 10.4 ) 33.7 56.4 +Operating profit (loss) ( 68.2 ) ( 208.4 ) 155.7 +Other expenses: +Interest expense, net 63.5 47.3 37.4 +Debt extinguishment and other costs — — 34.3 +Other expense (income), net 2.5 ( 2.8 ) 3.7 +Total other expenses 66.0 44.5 75.4 +Earnings (loss) before income taxes ( 134.2 ) ( 252.9 ) 80.3 +Income tax expense (benefit) ( 95.0 ) ( 63.8 ) 13.3 +Net earnings (loss) ( 39.2 ) ( 189.1 ) 67.0 +Less: net earnings (loss) attributable to noncontrolling interests 0.4 ( 0.8 ) ( 1.6 ) +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 39.6 ) $ ( 188.3 ) $ 68.6 +Net earnings (loss) per share (see Note 3): +Basic $ ( 0.51 ) $ ( 2.37 ) $ 0.82 +Diluted $ ( 0.51 ) $ ( 2.37 ) $ 0.81 +See accompanying notes to consolidated financial statements. +38 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income (Loss) +Fiscal Year +(In millions) 2023 2022 2021 +Net earnings (loss) $ ( 39.2 ) $ ( 189.1 ) $ 67.0 +Other comprehensive income (loss) net of tax: +Foreign currency translation adjustments 17.3 ( 76.8 ) ( 20.0 ) +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $( 1.4 ), $ 7.9 and $ 3.0 +( 4.8 ) 25.4 7.7 +Reclassification adjustments included in net earnings (loss), net of taxes of $( 4.6 ), $( 4.7 ) and $ 1.4 +( 14.2 ) ( 14.6 ) 3.7 +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $( 2.0 ), $ 6.3 and $ 7.8 +( 7.5 ) 22.6 29.5 +Amortization of prior actuarial losses, net of taxes of $( 0.2 ), $ 2.4 and $ 3.0 +( 0.5 ) 8.9 10.8 +Curtailment gain, net of taxes of $ 0.3 in 2023 +0.9 — — +Other comprehensive income (loss) ( 8.8 ) ( 34.5 ) 31.7 +Less: other comprehensive income (loss) attributable to noncontrolling interests 0.5 ( 0.5 ) — +Other comprehensive income (loss) attributable to Wolverine World Wide, Inc. ( 9.3 ) ( 34.0 ) 31.7 +Comprehensive income (loss) ( 48.0 ) ( 223.6 ) 98.7 +Less: comprehensive income (loss) attributable to noncontrolling interests 0.9 ( 1.3 ) ( 1.6 ) +Comprehensive income (loss) attributable to Wolverine World Wide, Inc. $ ( 48.9 ) $ ( 222.3 ) $ 100.3 +See accompanying notes to consolidated financial statements. +39 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) December 30, +2023 December 31, +2022 +ASSETS +Current assets: +Cash and cash equivalents $ 179.0 $ 131.5 +Accounts receivable, less allowances of $ 18.3 and $ 11.1 +230.8 241.7 +Finished products, net 371.6 743.2 +Raw materials and work-in-process, net 2.0 2.0 +Total inventories 373.6 745.2 +Prepaid expenses and other current assets 81.1 79.0 +Current assets held for sale 160.6 67.9 +Total current assets 1,025.1 1,265.3 +Property, plant and equipment, net of accumulated depreciation of $ 255.2 and $ 236.1 +96.3 136.2 +Lease right-of-use assets +118.2 174.7 +Goodwill 427.1 485.0 +Indefinite-lived intangibles 174.1 274.0 +Amortizable intangibles, net 34.9 67.4 +Deferred income taxes 116.4 24.5 +Other assets 70.7 65.6 +Total assets $ 2,062.8 $ 2,492.7 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 206.0 $ 272.2 +Accrued salaries and wages 37.1 32.3 +Other accrued liabilities 252.4 322.9 +Lease liabilities 34.7 39.1 +Current maturities of long-term debt 10.0 10.0 +Borrowings under revolving credit agreements 305.0 425.0 +Current liabilities held for sale 24.2 8.8 +Total current liabilities 869.4 1,110.3 +Long-term debt, less current maturities +605.8 723.0 +Accrued pension liabilities +78.4 72.9 +Deferred income taxes +26.9 35.3 +Lease liabilities, noncurrent +132.4 153.6 +Other liabilities +49.9 58.6 +Stockholders’ equity +Common stock – par value $ 1 , authorized 320,000,000 shares; 112,953,782 , and 112,202,078 shares issued +113.0 112.2 +Additional paid-in capital 364.0 325.4 +Retained earnings 834.8 907.2 +Accumulated other comprehensive loss ( 142.2 ) ( 132.9 ) +Cost of shares in treasury; 33,403,280 , and 33,413,204 shares +( 891.0 ) ( 891.3 ) +Total Wolverine World Wide, Inc. stockholders’ equity 278.6 320.6 +Noncontrolling interest +21.4 18.4 +Total stockholders’ equity 300.0 339.0 +Total liabilities and stockholders’ equity $ 2,062.8 $ 2,492.7 +See accompanying notes to consolidated financial statements. +40 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows +Fiscal Year +(In millions) +2023 2022 2021 +OPERATING ACTIVITIES +Net earnings (loss) $ ( 39.2 ) $ ( 189.1 ) $ 67.0 +Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: +Depreciation and amortization +35.1 34.6 33.2 +Deferred income taxes +( 95.8 ) ( 105.7 ) ( 14.7 ) +Stock-based compensation expense +15.2 33.4 38.1 +Pension and SERP expense +0.7 9.3 14.0 +Debt extinguishment — — 5.8 +Impairment of long-lived assets 185.3 428.7 — +Environmental and other related costs ( 55.1 ) ( 23.0 ) 33.7 +Gain on sale of businesses, trademarks and long-lived assets ( 90.4 ) ( 90.0 ) — +Other +( 2.0 ) ( 2.7 ) ( 1.9 ) +Changes in operating assets and liabilities: +Accounts receivable +2.8 84.5 ( 49.2 ) +Inventories +286.5 ( 428.9 ) ( 77.2 ) +Other operating assets +( 16.8 ) ( 21.1 ) ( 2.3 ) +Accounts payable +( 65.6 ) 62.6 23.0 +Income taxes +( 2.3 ) 2.4 1.6 +Other operating liabilities +( 36.6 ) 26.1 15.7 +Net cash provided by (used in) operating activities 121.8 ( 178.9 ) 86.8 +INVESTING ACTIVITIES +Business acquisition, net of cash acquired +— — ( 417.4 ) +Additions to property, plant and equipment ( 14.6 ) ( 36.5 ) ( 17.6 ) +Investment in joint ventures +— ( 2.8 ) — +Proceeds from sale of businesses, trademarks and long-lived assets 188.9 90.0 — +Other +( 2.7 ) 3.9 ( 2.3 ) +Net cash provided by (used in) investing activities 171.6 54.6 ( 437.3 ) +FINANCING ACTIVITIES +Payments under revolving credit agreements ( 743.0 ) ( 740.0 ) ( 435.0 ) +Borrowings under revolving credit agreements 623.0 940.0 660.0 +Proceeds from company-owned life insurance policies — 30.5 — +Borrowings of long-term debt +— — 750.0 +Payments on long-term debt +( 118.3 ) ( 10.0 ) ( 730.0 ) +Payments of debt issuance and debt extinguishment costs +( 0.9 ) — ( 10.4 ) +Cash dividends paid +( 32.6 ) ( 32.8 ) ( 33.5 ) +Purchase of common stock for treasury +— ( 81.3 ) ( 39.6 ) +Employee taxes paid under stock-based compensation plans +( 5.8 ) ( 7.7 ) ( 14.1 ) +Proceeds from the exercise of stock options +0.1 1.4 17.1 +Contributions from noncontrolling interests +31.2 7.0 4.8 +Net cash provided by (used in) financing activities ( 246.3 ) 107.1 169.3 +Effect of foreign exchange rate changes +2.0 ( 9.0 ) ( 4.5 ) +Increase (decrease) in cash and cash equivalents 49.1 ( 26.2 ) ( 185.7 ) +Cash and cash equivalents at beginning of the year +135.5 161.7 347.4 +Cash and cash equivalents at end of the year +$ 184.6 $ 135.5 $ 161.7 +See accompanying notes to consolidated financial statements. +41 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows – continued +Fiscal Year +(In millions) +2023 2022 2021 +OTHER CASH FLOW INFORMATION +Interest paid +$ 63.5 $ 43.0 $ 34.6 +Net income taxes paid +27.0 44.3 27.8 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid 0.3 3.3 3.2 +See accompanying notes to consolidated financial statements. +Cash and cash equivalents at the end of the year in the Consolidated Statements of Cash Flows includes $ 5.6 million and $ 4.0 million of cash and cash equivalents that are classified as held for sale as of December 30, 2023 and December 31, 2022, respectively, that are not included in cash and cash equivalents in the Consolidated Balance Sheets. +42 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at January 2, 2021 $ 110.4 $ 252.6 $ 1,093.3 $ ( 130.6 ) $ ( 764.3 ) $ 11.6 $ 573.0 +Net earnings (loss) 68.6 ( 1.6 ) 67.0 +Other comprehensive income 31.7 — 31.7 +Shares forfeited, net of shares issued under stock incentive plans ( 431,180 shares) +0.4 ( 8.2 ) ( 7.8 ) +Shares issued for stock options exercised, net ( 774,145 shares) +0.8 16.4 17.2 +Stock-based compensation expense +38.1 38.1 +Cash dividends declared ($ 0.40 per share) +( 33.7 ) ( 33.7 ) +Issuance of treasury shares ( 4,005 shares) +— 0.1 0.1 +Purchase of common stock for treasury ( 1,150,721 shares) +( 39.6 ) ( 39.6 ) +Purchases of shares under stock-based compensation plans ( 172,023 shares) +( 6.4 ) ( 6.4 ) +Capital contribution from noncontrolling interests 4.8 4.8 +Balance at January 1, 2022 $ 111.6 $ 298.9 $ 1,128.2 $ ( 98.9 ) $ ( 810.2 ) $ 14.8 $ 644.4 +Net loss ( 188.3 ) ( 0.8 ) ( 189.1 ) +Other comprehensive loss ( 34.0 ) ( 0.5 ) ( 34.5 ) +Shares issues, net of shares forfeited under stock incentive plans ( 495,502 shares) +0.5 ( 8.2 ) ( 7.7 ) +Shares issued for stock options exercised, net ( 74,482 shares) +0.1 1.3 1.4 +Stock-based compensation expense +33.4 33.4 +Cash dividends declared ($ 0.40 per share) +( 32.7 ) ( 32.7 ) +Issuance of treasury shares ( 5,973 shares) +— 0.2 0.2 +Purchase of common stock for treasury ( 3,815,164 shares) +( 81.3 ) ( 81.3 ) +Capital contribution from noncontrolling interests 7.0 7.0 +Other ( 2.1 ) ( 2.1 ) +Balance at December 31, 2022 $ 112.2 $ 325.4 $ 907.2 $ ( 132.9 ) $ ( 891.3 ) $ 18.4 $ 339.0 +See accompanying notes to consolidated financial statements. +43 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at December 31, 2022 $ 112.2 $ 325.4 $ 907.2 $ ( 132.9 ) $ ( 891.3 ) $ 18.4 $ 339.0 +Net earnings (loss) ( 39.6 ) 0.4 ( 39.2 ) +Other comprehensive income (loss) ( 9.3 ) 0.5 ( 8.8 ) +Shares issued, net of shares forfeited under stock incentive plans ( 745,662 shares) +0.8 ( 6.7 ) ( 5.9 ) +Shares issued for stock options exercised, net ( 6,042 shares) +— 0.1 0.1 +Stock-based compensation expense +15.2 15.2 +Cash dividends declared ($ 0.40 per share) +( 32.8 ) ( 32.8 ) +Issuance of treasury shares ( 9,924 shares) +( 0.1 ) 0.3 0.2 +Capital contribution from noncontrolling interests 30.1 2.1 32.2 +Balance at December 30, 2023 $ 113.0 $ 364.0 $ 834.8 $ ( 142.2 ) $ ( 891.0 ) $ 21.4 $ 300.0 +See accompanying notes to consolidated financial statements. +44 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years 2023, 2022 and 2021 +1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids’ footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Sperry ® , Stride Rite ® , Sweaty Betty ® and Wolverine ® . The Company’s products are marketed worldwide through owned operations, through licensing and distribution arrangements with third parties, and through joint ventures. The Company also operates retail stores and eCommerce sites to market both its own brands and branded footwear and apparel from other manufacturers. +Effective February 4, 2023, the Company completed the sale of the Keds ® business. See Note 20 for further discussion. +In the third quarter of fiscal 2023, the Company entered into a multi-year licensing agreement of the Hush Puppies ® brand in the United States and Canada. As part of this agreement, the Company agreed to sell inventory and provide certain transition services to the licensee. In addition, the Company completed the sale of Hush Puppies ® trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau in the third quarter of fiscal 2023. The Company will continue to own the Hush Puppies ® brand throughout the rest of the world. See Note 20 for further discussion. +Effective August 23, 2023, the Company completed the sale of the U.S. performance leathers business and effective December 28, 2023, the Company completed the sale of the Asia-based performance leathers business. See Note 20 for further discussion. +Principles of Consolidation and Basis of Presentation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”) and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2023, 2022 and 2021 each had 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers . Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations and recognizes revenue upon completion of the performance obligation. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consists of wholesale revenue and direct-to-consumer revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products to the customer. Direct-to-consumer includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue is recognized at time of sale. The shipment of goods, or point of purchase for retail store sales, was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. +Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related +45 +expenses incurred by the Company are recorded as cost of goods sold. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the goods transfers to the customer as fulfillment activities. +Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the direct-to-consumer channel. The timing of revenue recognition, billings and cash collections results in billed accounts receivable (contract assets), and customer advances (contract liabilities) on the consolidated balance sheets. Generally, billing occurs commensurate to revenue recognition resulting in contract assets. See Note 6 for additional information. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 169.3 million, $ 220.7 million and $ 195.4 million for fiscal years 2023, 2022 and 2021, respectively. Prepaid advertising totaled $ 2.6 million and $ 2.7 million as of December 30, 2023 and December 31, 2022, respectively. +Earnings Per Share +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates fair value. +Allowance for Credit Losses +The Company maintains an allowance for credit losses on accounts receivable that represents estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions. +Inventories +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished product inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished product inventories in foreign countries and certain domestic finished product inventories. The average cost of inventory is used for finished product inventories of the Company’s direct-to-consumer business and Sweaty Betty ® inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for buildings, leasehold improvements, furniture and fixtures, material handling systems, equipment and computer hardware and software. Normal repairs and +46 +maintenance are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings, from 5 to 15 years for leasehold improvements, from 3 to 10 years for furniture, fixtures and equipment and from 3 to 10 years for software. +Leases +The Company’s leases consist primarily of corporate offices, retail stores, distribution centers, showrooms, vehicles and office equipment. The Company leases assets in the normal course of business to meet its current and future needs while providing flexibility to its operations. The Company enters into contracts with third parties to lease specifically identified assets. Most of the Company’s leases have contractually specified renewal periods. Most retail store leases have early termination clauses that the Company can elect if stipulated sales amounts are not achieved. The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised. +Under FASB ASC Topic 842, Leases , the Company has elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all of its leases. In addition, the Company has elected to account for multiple lease components as a single lease component. The Company’s leases may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease. The Company recognizes variable lease payments when the amounts are incurred and determinable. The Company has elected to account for leases of less than one year as short-term leases and accordingly does not recognize a right-of-use asset or lease liability for these leases. The Company recognizes rent expense on a straight-line basis over the lease term. +The Company subleases certain portions of leased offices and distribution centers that exceed the Company’s current operational needs. Since the Company utilizes the majority of the leased space and retains the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the term of the sublease and is recognized in other expense (income), net on the consolidated statements of operations. +The Company recognizes a lease liability in current and noncurrent liabilities equal to the present value of the fixed future lease payments using an incremental borrowing rate as of the commencement date of each lease. The incremental borrowing rate is based on an interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments. The Company also recognizes a right-of-use asset, which is equal to the lease liability as of December 30, 2023 adjusted for the remaining balance of accrued rent and unamortized lease incentives. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. +Derivatives +The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. Refer to Note 11 for further discussion regarding the Company's derivative arrangements and derivative accounting. +Equity Method Investments +Equity method investments where the Company owns a non-controlling interest, but exercises significant influence, are accounted for under the equity method of accounting. The Company's original cost of investment is adjusted for the Company's share of equity in the earnings of the equity investee. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. The Company includes assumptions such as a discount rate and expected future operating performance, which includes forecasted revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin and cost of capital, which are derived from internal projections and operating plans, as +47 +part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value. Goodwill and indefinite-lived intangibles are considered impaired if the recorded value exceeds the fair value. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible asset are less than their carrying value. The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. See Note 4 for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +The Company recorded $ 37.3 million in non-cash impairment charges on certain Corporate U.S. and U.K. office long-lived property, plant and equipment and right-of-use assets, primarily resulting from divestitures and consolidation of U.S. and U.K. offices, to adjust the carrying amount of the assets to estimated fair value. Fair value was estimated based on the discounted cash flows of estimated rental income from subleases net of estimated expenses. The Company incurred $ 1.9 million in non-cash impairment charges on certain Sperry ® retail store assets where the estimated future cash flows did not support the net book value of the assets. The following table provides details related to asset impairment charges recorded during 2023: +(In millions) December 30, +2023 +Lease right-of-use assets impairment $ 28.6 +Property, plant and equipment impairment 10.6 +Indefinite-lived trade name impairment (1) +38.3 +Held for sale impairment of carrying value (2) +96.8 +Impairment of Sperry ® assets not sold (2) +11.0 +Total impairment of long-lived assets $ 185.3 +(1) See Note 4 for information related to the Indefinite-lived trade name impairment recorded in fiscal 2023. +(2) See Note 20 for information related to the held for sale carrying value impairment and impairment of Sperry ® assets not sold recorded in fiscal 2023. +Fair Value of Financial Instruments +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of +48 +required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters described in Note 17. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 13 for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Stock Based Compensation +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. All stock-based awards are accounted for based on their respective grant date fair values. Compensation cost for all awards expected to vest is recognized over the vesting period, including accelerated recognition for retirement-eligible employees. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. The Company includes Global Intangible Low Tax Income ("GILTI") as a current period tax expense when incurred. +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benef it is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. T he Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2023, 2022 and 2021. +49 +Business Combination +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" accounting policy. +2. NEW ACCOUNTING STANDARDS +The FASB has issued the following Accounting Standards Update (“ASU”) that the Company has adopted. The following is a summary of the new standard. +Standard Description Effect on the Financial Statements +ASU 2020-04, Reference Rate Reform (Topic 848); Facilitation of the Effects of Reference Rate Reform on Financial Reporting (as amended by ASU 2021-01 and ASU 2022-06). +Provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. +The Company adopted ASU 2020-04 during the second quarter of 2023 on a prospective basis. The Company amended its amended senior credit facility to use SOFR as an alternative to LIBOR. The adoption of the ASU did not have a material effect on the consolidated financial statements. +The FASB has issued the following Accounting Standards Updates (“ASU”) that the Company has not yet adopted. The following is a summary of the new standard and anticipated impact of adopting these new standards. +Standard Description Effect on the Financial Statements +ASU 2023-07, Improvements to Reportable Segment Disclosures Requires entities disclose on an annual and interim basis significant segment expense, including an amount and composition description for other segment items, and how reported measures of profit or loss are used by the chief operating decision maker in assessing segment performance and deciding how to allocate resources. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the impact of the new standard on its Consolidated Financial Statements. +ASU 2023-09, Improvements to Income Tax Disclosures The ASU requires annual disclosures of prescribed standard categories for the components of the effective tax rate reconciliation, disclosure of income taxes paid disaggregated by jurisdiction, and other income-tax related disclosures. The ASU is effective on a prospective basis, with retrospective application permitted, for fiscal years after December 15, 2024. The Company is evaluating the impact of the new standard on its Consolidated Financial Statements. +50 +3. EARNINGS PER SHARE +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) 2023 2022 2021 +Numerator: +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ ( 39.6 ) $ ( 188.3 ) $ 68.6 +Less: net earnings attributed to participating share-based awards +( 0.7 ) ( 0.6 ) ( 1.1 ) +Net earnings (loss) used to calculate earnings per share $ ( 40.3 ) $ ( 188.9 ) $ 67.5 +Denominator: +Weighted average shares outstanding +79.4 79.7 82.4 +Adjustment for unvested restricted common stock +— — ( 0.1 ) +Shares used to calculate basic earnings per share +79.4 79.7 82.3 +Effect of dilutive share-based awards +— — 1.0 +Shares used to calculate diluted earnings per share +79.4 79.7 83.3 +Net earnings (loss) per share: +Basic +$ ( 0.51 ) $ ( 2.37 ) $ 0.82 +Diluted +$ ( 0.51 ) $ ( 2.37 ) $ 0.81 +For fiscal years 2023, 2022 and 2021, 2,022,676 , 1,434,081 and 605,774 outstanding stock options, respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 30, 2023 or December 31, 2022. The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company did not repurchase Company common stock in fiscal year 2023, The Company repurchased $ 81.3 million and $ 39.6 million of Company common stock in fiscal years 2022 and 2021, respectively, under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 5.8 million, $ 7.7 million and $ 14.1 million of Company common stock in fiscal years 2023, 2022 and 2021, respectively, in connection with employee transactions related to stock incentive plans. +On February 11, 2019, the Company's Board of Directors approved a common stock repurchase program that authorizes the repurchase of an additional $ 400.0 million of common stock over a four year period incremental to amounts remaining under the previous repurchase program. The annual amount of stock repurchases is restricted under the terms of the Company's Senior Credit Facilities and senior notes indenture. The common stock repurchase program expired on September 11, 2023. +4. GOODWILL AND OTHER INTANGIBLE ASSETS +The changes in the carrying amount of goodwill are as follows: +Fiscal Year +(In millions) 2023 2022 +Goodwill balance at beginning of the year $ 485.0 $ 556.6 +Sale of a business (see Note 20) ( 20.4 ) — +Impairment — ( 48.4 ) +Reclassified to assets held for sale (1) +( 43.0 ) — +Foreign currency translation effects 5.5 ( 23.2 ) +Goodwill balance at end of the year $ 427.1 $ 485.0 +(1) Represents goodwill associated with the Sperry ® business classified as held for sale as of fiscal 2023, refer to Note 20. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. In the fourth quarter of 2022, after completion of the annual impairment testing, the Company recorded a $ 48.4 million impairment charge for Sweaty Betty ® goodwill. The Company did not recognize +51 +any impairment charges for goodwill during 2023 and 2021. For the Sweaty Betty ® reporting unit included in the fiscal 2023 annual impairment test, the estimated fair value of the reporting unit exceeded the carrying value of by 5 %. +The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 174.1 million and $ 274.0 million as of December 30, 2023 and December 31, 2022, respectively. In the third quarter of 2023, due to the continued lower current year performance of the Sperry ® brand, the Company determined that a triggering event had occurred requiring impairment testing of the Sperry ® trade name. Based on the results of the impairment testing, the Company recognized impairment charges of $ 38.3 million to the Sperry ® trade name. The impairment charge was due to reductions in future cash flow assumptions mainly due to decreases in anticipated future performance and an increase in the discount rate used in the valuation. In the fourth quarter of fiscal 2022, after the completion of the annual impairment testing, the Company recognized impairment charges of $ 191.0 million and $ 189.3 million to the Sperry ® and Sweaty Betty ® trade names, respectively. +The Sperry ® and Sweaty Betty ® trade names were valued using the income approach, specifically the multi-period excess earnings method. The key assumptions used in the valuation being revenue growth, EBITDA margin, and the discount rate. Although the Company believes the estimates and assumptions used in the valuation were appropriate, it is possible assumptions could change in future periods. The risk of future impairment to the Sweaty Betty ® trade name and Sweaty Betty ® goodwill depend on key assumptions used in the determination of the trade name's and reporting unit's fair value, such as revenue growth, earnings before interest, taxes, depreciation and amortization margin, discount rate, and assumed tax rate, or if macroeconomic conditions deteriorate and adversely affect the values of the Company's Sweaty Betty ® trade name and the Sweaty Betty ® reporting unit. A future impairment charge of the Sweaty Betty ® trade name and the Sweaty Betty ® reporting unit goodwill could have an adverse material effect on the Company's consolidated financial results The carrying value of the Company’s Sweaty Betty ® trade name indefinite-lived intangible asset and the Sweaty Betty ® reporting unit goodwill were $ 99.5 million and $ 53.0 million, respectively, as of December 30, 2023. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows: +December 30, 2023 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 59.6 $ 28.1 $ 31.5 9 +Other 21.3 17.9 3.4 3 +Total $ 80.9 $ 46.0 $ 34.9 +December 31, 2022 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 118.4 $ 55.2 $ 63.2 10 +Other 22.2 18.0 4.2 3 +Total $ 140.6 $ 73.2 $ 67.4 +Amortization expense for these amortizable intangible assets was $ 7.2 million, $ 7.9 million and $ 8.4 million for fiscal years 2023, 2022 and 2021, respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 30, 2023 is as follows: +(In millions) 2024 2025 2026 2027 2028 +Amortization expense $ 4.6 $ 4.3 $ 4.0 $ 3.7 $ 3.4 +5. ACCOUNTS RECEIVABLE +The Company and certain of its subsidiaries sell, on a continuous basis without recourse, their trade receivables to Rockford ARS, LLC (“Rockford ARS”), a wholly-owned bankruptcy-remote subsidiary of the Company. On December 7, 2022, Rockford ARS entered into a receivables purchase agreement (“RPA”) to sell up to $ 175.0 million of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” in the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Rockford ARS has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures on December 5, 2025 each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables. +52 +The proceeds of the RPA are classified as operating activities in the Company's Consolidated Statement of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchasers. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection. Total receivables sold under the RPA were $ 613.9 million and $ 218.2 million in fiscal years 2023 and 2022, and total cash collections under the RPA were $ 662.7 million and $ 75.5 million in fiscal years 2023 and 2022. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. +As of the fiscal years ended December 30, 2023 and December 31, 2022, the amount sold to the Purchasers was $ 93.9 million and $ 142.7 million respectively, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Rockford ARS maintains a certain level of unsold receivables, which was $ 62.3 million and $ 70.0 million as of the fiscal years ended December 30, 2023 and December 31, 2022 respectively. +6. REVENUE FROM CONTRACTS WITH CUSTOMERS +Revenue Recognition and Performance Obligations +The Company reports disaggregated revenue for the wholesale and direct-to-consumer sales channels, which are reconciled to the Company’s reportable segments. The wholesale channel includes royalty revenues, which operates in a similar manner as other wholesale revenues due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation. +Fiscal Year +(in millions) 2023 2022 2021 +Active Group: +Wholesale $ 999.1 $ 1,086.6 $ 930.7 +Direct-to-consumer 440.0 483.6 388.9 +Total 1,439.1 1,570.2 1,319.6 +Work Group: +Wholesale 428.6 532.0 487.3 +Direct-to-consumer 52.0 58.5 61.5 +Total 480.6 590.5 548.8 +Other: +Wholesale 232.8 374.4 369.2 +Direct-to-consumer 90.4 149.7 177.3 +Total 323.2 524.1 546.5 +Total revenue $ 2,242.9 $ 2,684.8 $ 2,414.9 +The Company has agreements to license symbolic intellectual property with minimum guarantees or fixed consideration. The Company is due $ 14.0 million of remaining fixed transaction price under its license agreements as of December 30, 2023, which it expects to recognize per the terms of its contracts over the course of time through December 2028 . The Company has elected to omit the remaining variable consideration under its license agreements given the Company recognizes revenue equal to what it has the right to invoice and that amount corresponds directly with the value to the customer of the Company’s performance to date. +Reserves for Variable Consideration +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during fiscal years 2023 and 2022 related to the Company’s contract liabilities was nominal. +53 +The Company’s contract balances are as follows: +(In millions) December 30, +2023 December 31, +2022 +Product returns reserve $ 13.1 $ 15.3 +Customer markdowns reserve 5.1 2.6 +Other sales incentives reserve 4.2 3.3 +Customer rebates liability 14.7 19.8 +Customer advances liability 6.8 9.1 +The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from initial estimates. If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. +Product Returns +Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and an offsetting increase to other accrued liabilities on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. The estimated cost of inventory for product returns is recorded in prepaid expenses and other current assets on the consolidated balance sheets. The estimated cost of inventory for product returns was $ 6.1 million and $ 6.7 million at December 30, 2023 and December 31, 2022, respectively. +Customer Markdowns +Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. +Other Sales Incentives +The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. +Customer Rebates +The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. +Customer Advances +The Company recognizes a liability for amounts received from customers before revenue is recognized. Customer advances are recognized in other accrued liabilities on the consolidated balance sheets. +7. INVENTORIES +The Company used the LIFO method to value inventories of $ 88.8 million and $ 109.8 million at December 30, 2023 and December 31, 2022, respectively. During fiscal years 2023 and 2022, changes in the LIFO reserve increased cost of goods sold by $ 1.3 million and $ 3.0 million, respectively. If the FIFO method had been used, inventories would have been $ 12.3 million and $ 11.0 million higher than reported at December 30, 2023 and December 31, 2022, respectively. +54 +8. DEBT +Total debt consists of the following obligations: +(In millions) December 30, +2023 December 31, +2022 +Term Facility, due October 21, 2026 $ 71.7 $ 190.0 +Senior Notes, 4.000% interest, due August 15, 2029 550.0 550.0 +Borrowings under revolving credit agreements 305.0 425.0 +Unamortized deferred financing costs ( 5.9 ) ( 7.0 ) +Total debt $ 920.8 $ 1,158.0 +The Company’s Credit Agreement provides for a term loan A facility (the “Term Facility”) and for a revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”). The maturity date of the loans under the Senior Credit Facilities is October 21, 2026. The Credit Agreement provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. +The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026. The scheduled principal payments due under the Term Facility over the next 12 months total $ 10.0 million as of December 30, 2023 and are recorded as current maturities of long-term debt on the consolidated balance sheets. In addition, the Company made payments towards the Term Facility in accordance with disposition proceeds language contained in the Credit Agreement. +The Revolving Facility allows the Company to borrow up to an aggregate amount of $ 1.0 billion. The Revolving Facility also includes a $ 100.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Facility of $ 6.6 million and $ 5.7 million as of December 30, 2023 and December 31, 2022, respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Facility. +The interest rates applicable to amounts outstanding under Term Facility and to U.S. dollar denominated amounts outstanding under the Revolving Facility are, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125 % to 1.000 %, or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125 % to 2.000 % (all capitalized terms used in this sentence are as defined in the Credit Agreement). At December 30, 2023, the Term Facility and the Revolving Facility had a weighted-average interest rate of 6.18 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Senior Credit Facilities also contain certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Senior Credit Facilities require compliance with the following financial covenants: a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Senior Credit Facilities). As of December 30, 2023, the Company was in compliance with all covenants and performance ratios under the Senior Credit Facilities. +On June 30, 2023, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to its Credit Agreement, dated as of July 31, 2012. The Fourth Amendment provided the Company with near-term financial flexibility by adjusting the maximum Consolidated Leverage Ratio allowed under the Credit Agreement through the end of fiscal 2023. Financial covenant thresholds will revert to pre-existing levels in the first quarter of fiscal 2024. +On December 21, 2023, the Company entered into the Fifth amendment (the "Fifth Amendment") to its Credit Agreement, dated as of July 31, 2012. The Fifth Amendment provides the Company with additional allowable disposition capacity in fiscal 2023 and fiscal 2024 to support the Company's transformation. +The Company's $ 550.0 million 4.000 % senior notes issued on August 26, 2021 are due on August 15, 2029. Related interest payments are due semi-annually. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +55 +The Company has a foreign revolving credit facility with aggregate available borrowing s of $ 2.0 million that are un committed and, therefore, each borrowing against the facility is subject to approval by the lender. There were no borrowings against this facility as of December 30, 2023 and December 31, 2022. +The Company included in interest expense the amortization of deferred financing costs of $ 2.2 million, $ 2.0 million, and $ 2.3 million in fiscal years 2023, 2022 and 2021, respectively. +Annual maturities of debt for the fiscal years subsequent to December 30, 2023 are as follows: +(In millions) 2024 2025 2026 2027 2028 Thereafter +Annual maturities of debt +$ 315.0 $ 10.0 $ 51.7 $ — $ — $ 550.0 +9. PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) December 30, +2023 December 31, 2022 +Land $ 0.6 $ 3.9 +Buildings and leasehold improvements 110.0 121.8 +Furniture, fixtures and equipment 169.6 170.2 +Software 71.3 76.4 +Gross cost 351.5 372.3 +Less: accumulated depreciation 255.2 236.1 +Property, plant and equipment, net $ 96.3 $ 136.2 +Depreciation expense was $ 27.7 million, $ 26.7 million and $ 24.8 million for fiscal years 2023, 2022 and 2021, respectively. +10. LEASES +The following is a summary of the Company’s lease cost. +Fiscal Year +(In millions) 2023 2022 +Operating lease cost $ 40.4 $ 36.0 +Variable lease cost 13.8 14.5 +Short-term lease cost 4.6 3.1 +Sublease income ( 6.0 ) ( 8.3 ) +Total lease cost $ 52.8 $ 45.3 +The following is a summary of the Company’s supplemental cash flow information related to leases. +Fiscal Year +(In millions) 2023 2022 +Cash paid for operating lease liabilities $ 44.3 $ 39.5 +Operating lease assets obtained in exchange for lease liabilities 14.2 72.5 +56 +The weighted-average discount rate for operating leases as of December 30, 2023 is 5.3 %. The weighted-average remaining lease term for operating leases as of December 30, 2023 is 7.6 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 30, 2023 are as follows: +(In millions) Operating Leases +2023 $ 35.2 +2024 31.7 +2025 27.1 +2026 23.5 +2027 20.9 +Thereafter 72.3 +Total future payments 210.7 +Less: imputed interest 43.6 +Recognized lease liability $ 167.1 +The Company did not enter into any real estate leases with commencement dates subsequent to December 30, 2023. +11. DERIVATIVE FINANCIAL INSTRUMENTS +The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extended out to a maximum of 531 days and 524 days as of December 30, 2023 and December 31, 2022, respectively. If, in the future, the foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) within stockholders’ equity. +The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has an interest rate swap arrangement, which unless otherwise terminated, will mature on May 30, 2025 . This agreement, which exchanges floating rate interest payments for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts, has been designated as a cash flow hedge of the underlying debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap arrangement is recognized as interest expense, net. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swap and the variable rate borrowing, as well as its risk management objective and strategy for undertaking the hedge transactions. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the inception of the hedge, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) December 30, +2023 December 31, +2022 +Foreign exchange hedge contracts $ 269.0 $ 334.2 +Interest rate swap 75.3 176.2 +57 +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) December 30, +2023 December 31, +2022 +Financial assets: +Foreign exchange hedge contracts $ — $ 7.5 +Interest rate swap 1.8 6.1 +Financial liabilities: +Foreign exchange hedge contracts $ ( 5.1 ) $ ( 1.3 ) +Foreign exchange hedge contract financial assets are recorded to prepaid expenses and other current assets and financial liabilities are recorded to other accrued liabilities on the consolidated balance sheets. Interest rate swap financial assets are recorded to other assets and financial liabilities are recorded to other liabilities on the consolidated balance sheets. +12. STOCK-BASED COMPENSATION +The Company recognized stock-based compensation expense of $ 15.2 million, $ 33.4 million and $ 38.1 million and related income tax benefits of $ 2.9 million, $ 6.5 million and $ 7.5 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2023, 2022 and 2021, respectively. +As of December 30, 2023, the Company had 7,991,683 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2016, as amended and restated ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 2.6 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment. These restrictions typically lapse over a three-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement, death and disability, and upon a change in control of the Company. Awards issued to employees that meet the specified retirement age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +58 +Restricted Awards and Performance Awards +A summary of the unvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards Weighted- +Average +Grant Date +Fair Value Performance +Awards Weighted- +Average +Grant Date +Fair Value +Unvested at January 2, 2021 1,644,017 $ 26.39 1,005,322 $ 35.25 +Granted 654,898 34.64 630,996 38.02 +Vested ( 981,681 ) 22.78 ( 181,657 ) 35.03 +Forfeited ( 109,234 ) 32.75 ( 690,246 ) 35.71 +Unvested at January 1, 2022 1,208,000 $ 33.62 764,415 $ 35.69 +Granted 980,456 25.86 437,253 27.40 +Vested ( 452,448 ) 33.37 ( 343,290 ) 37.06 +Forfeited ( 219,530 ) 30.05 ( 83,724 ) 27.31 +Unvested at December 31, 2022 1,516,478 $ 28.95 774,654 $ 34.14 +Granted 1,678,585 13.66 686,294 14.82 +Vested ( 760,333 ) 28.49 ( 186,407 ) 33.88 +Forfeited ( 494,426 ) 21.71 ( 134,237 ) 26.92 +Unvested at December 30, 2023 1,940,304 $ 17.23 1,140,304 $ 23.78 +As of December 30, 2023, there was $ 19.0 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Awards vested during the year ended December 30, 2023 was $ 11.1 million. As of December 31, 2022, there was $ 19.4 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended December 31, 2022 was $ 10.9 million. As of January 1, 2022, there was $ 19.8 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended January 1, 2022 was $ 34.8 million. +As of December 30, 2023, there was $ 5.0 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of Performance Awards vested during the year ended December 30, 2023 was $ 5.7 million. As of December 31, 2022, there was $ 10.8 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Performance Aw ards vested during the year ended December 31, 2022 was $ 9.3 million. As of January 1, 2022, there was $ 16.1 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weig hted-average period of 1.4 years. The total fair value of Performance Awards vested during the year ended January 1, 2022 was $ 6.2 million. +59 +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $ 8.46 and $ 11.14 per share for fiscal years 2022 and 2021, respectively. +A summary of the stock option transactions is as follows: +Shares Under Option Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at January 2, 2021 3,259,405 $ 22.22 3.9 $ 29.7 +Granted 23,610 34.22 +Exercised ( 776,850 ) 22.11 +Canceled ( 17,353 ) 33.79 +Outstanding at January 1, 2022 2,488,812 $ 22.29 3.2 $ 16.7 +Granted 20,171 25.19 +Exercised ( 74,482 ) 18.26 +Canceled ( 101,091 ) 22.57 +Outstanding at December 31, 2022 2,333,410 $ 22.43 2.4 $ — +Granted — — +Exercised ( 6,042 ) 16.51 +Canceled ( 366,352 ) 21.81 +Outstanding at December 30, 2023 1,961,016 $ 22.56 1.7 $ — +Unvested at December 30, 2023 ( 10,959 ) +Exercisable at December 30, 2023 1,950,057 $ 22.53 1.7 $ — +The total pretax intrinsic value of stock options exercised during fiscal years 2023, 2022 and 2021 was $ 0.0 million, $ 0.4 million and $ 11.4 million, respectively. There was no unrecognized compensation expense related to stock option grants as of December 30, 2023. As of December 31, 2022 and January 1, 2022, there was $ 0.1 million and $ 0.2 million, respectively, of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 0.9 years and 1.3 years, respectively. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price o f the Company's stock was above the strike price ("in-the-money"), as of that date. There were no in-the-money options exercisable as of December 30, 2023 and December 31, 2022. The Company’s closing stock price was $ 8.89 per share as of December 30, 2023 and $ 10.93 per share as of December 31, 2022. +13. RETIREMENT PLANS +The Company has two non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The second plan is closed to new participants and no longer accrue future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company following retirement, generally for the duration of their lives. The Company maintains life insurance policies with a cash surrender value of $ 48.3 million at December 30, 2023 and $ 46.6 million at December 31, 2022 recognized as other assets on the consolidated balance sheets that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for discretionary Company contributions based on the amount of participant deferrals. The Company recognized expense for its +60 +contributions to the defined contribution plans of $ 4.9 million, $ 5.6 million and $ 5.2 million in fiscal years 2023, 2022 and 2021, respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.6 million, $ 1.5 million and $ 1.4 million in fiscal years 2023, 2022 and 2021, respectively. The Company also has a benefit plan at a foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 0.6 million at December 30, 2023 and $ 0.8 million at December 31, 2022 and was recognized as a deferred compensation liability on the consolidated balance sheets. +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2023 and 2022: +Fiscal Year +(In millions) 2023 2022 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ 328.2 $ 434.3 +Service cost pertaining to benefits earned during the year +3.1 5.3 +Interest cost on projected benefit obligations +17.8 13.2 +Actuarial loss (gain) 15.7 ( 107.8 ) +Benefits paid to plan participants +( 17.5 ) ( 16.8 ) +Curtailment +( 2.1 ) — +Projected benefit obligations at end of the year +$ 345.2 $ 328.2 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ 251.4 $ 323.0 +Actual return (loss) on plan assets 24.7 ( 58.7 ) +Company contributions - SERP +3.9 3.8 +Benefits paid to plan participants +( 17.3 ) ( 16.7 ) +Fair value of pension assets at end of the year +$ 262.7 $ 251.4 +Funded status +$ ( 82.5 ) $ ( 76.8 ) +Amounts recognized in the consolidated balance sheets: +Current liabilities +$ ( 4.1 ) $ ( 3.9 ) +Accrued pension liabilities ( 78.4 ) ( 72.9 ) +Funded status of qualified defined benefit plans and SERP $ ( 82.5 ) $ ( 76.8 ) +Unrecognized net actuarial loss recognized in accumulated other comprehensive income was $ 10.7 million and $ 1.8 million, and amounts net of tax were $ 8.7 million and $ 1.7 million, as of December 30, 2023 and December 31, 2022, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 334.7 million at December 30, 2023 and $ 315.9 million at December 31, 2022 . The increase in benefit obligation for fiscal 2023 was the result of actuarial losses caused by changes to the discount rate . The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension income during fiscal 2024 is $ 1.7 million. +61 +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) 2023 2022 2021 +Service cost pertaining to benefits earned during the year $ 3.1 $ 5.3 $ 6.9 +Interest cost on projected benefit obligations 17.8 13.2 12.8 +Expected return on pension assets ( 18.5 ) ( 20.5 ) ( 19.5 ) +Net amortization loss (gain) ( 0.7 ) 11.3 13.8 +Curtailment ( 1.0 ) — — +Net pension expense $ 0.7 $ 9.3 $ 14.0 +Less: SERP expense 3.9 3.8 5.7 +Qualified defined benefit pension plans expense (income) $ ( 3.2 ) $ 5.5 $ 8.3 +The non-service cost components of net pension expense is recorded in the Other expense (income), net line item on the consolidated statements of operations and comprehensive income. +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2023 2022 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +5.30 % 5.56 % +Rate of compensation increase - pension +4.09 % 4.13 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +5.56 % 3.09 % +Expected long-term rate of return on plan assets +6.88 % 6.87 % +Rate of compensation increase - pension +4.13 % 4.18 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five-year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining life expectancy of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and the service and interest cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 30, 2023 were 44 % in equity securities and 56 % in fixed income securities. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +December 30, 2023 December 31, 2022 +(In millions) Total % of Total Total % of Total +Equity securities $ 122.7 +1 +46.7 % $ 112.2 +1 +44.7 % +Fixed income securities 85.8 +1 +32.7 % 90.0 +1 +35.8 % +Cash 52.4 19.9 % 46.6 18.5 % +Other 1.8 +2 +0.7 % 2.6 +2 +1.0 % +Fair value of plan assets $ 262.7 100.0 % $ 251.4 100.0 % +1 In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +62 +2 In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 1 for additional information. +The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2024 and expects to make $ 4.1 million in contributions to the SERP in fiscal 2024. +Expected benefit payments for the fiscal years subsequent to December 30, 2023 are as follows: +(In millions) 2024 2025 2026 2027 2028 2029-2033 +Expected benefit payments $ 19.2 $ 20.0 $ 20.6 $ 21.2 $ 21.6 $ 114.2 +14. INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) 2023 2022 2021 +United States $ ( 115.2 ) $ ( 94.6 ) $ 22.7 +Foreign ( 19.0 ) ( 158.3 ) 57.6 +Earnings (loss) before income taxes $ ( 134.2 ) $ ( 252.9 ) $ 80.3 +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) 2023 2022 2021 +Current expense: +Federal $ ( 0.6 ) $ 22.7 $ 14.6 +State ( 1.7 ) 4.0 2.5 +Foreign 1.3 28.2 15.0 +Deferred expense (benefit): +Federal ( 88.5 ) ( 52.9 ) ( 17.1 ) +State 0.1 ( 4.9 ) ( 1.8 ) +Foreign ( 5.6 ) ( 60.9 ) 0.1 +Income tax expense (benefit) $ ( 95.0 ) $ ( 63.8 ) $ 13.3 +63 +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: +Fiscal Year +(In millions) 2023 2022 2021 +Income taxes at U.S. statutory rate of 21% $ ( 28.2 ) $ ( 53.1 ) $ 16.9 +State income taxes, net of federal income tax ( 2.0 ) ( 2.3 ) ( 1.1 ) +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong ( 7.3 ) ( 14.2 ) ( 7.2 ) +Italy ( 2.5 ) 0.3 1.1 +United Kingdom 2.3 ( 1.1 ) ( 0.5 ) +Other 3.9 2.9 2.5 +Adjustments for uncertain tax positions ( 1.3 ) ( 0.9 ) ( 1.3 ) +Change in valuation allowance 29.0 2.1 2.2 +Tax impact of impairment in foreign jurisdiction — 3.0 — +Global Intangible Low Tax Income tax 1.5 3.8 3.2 +Foreign Derived Intangible Income tax benefit — ( 8.2 ) ( 3.7 ) +Non-deductible executive compensation ( 0.8 ) 3.3 5.2 +Permanent adjustments related to employee share based compensation 4.2 1.6 ( 3.7 ) +Deferred tax on future cash dividends — ( 0.2 ) ( 0.9 ) +Income tax audit adjustments — — 2.5 +Permanent adjustment related to goodwill divested 4.3 — — +Deferred adjustment for income tax audit — — ( 1.2 ) +Capital loss from sale of subsidiary ( 95.7 ) — — +Other Permanent adjustments and non-deductible expenses ( 1.2 ) ( 1.4 ) ( 0.3 ) +Other ( 1.2 ) 0.6 ( 0.4 ) +Income tax expense (benefit) $ ( 95.0 ) $ ( 63.8 ) $ 13.3 +64 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) December 30, +2023 December 31, +2022 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances $ 16.0 $ 18.1 +Deferred compensation accruals 6.1 4.3 +Accrued pension expense 19.7 18.7 +Stock-based compensation 7.0 9.1 +Net operating loss and foreign tax credit carryforwards 56.6 19.9 +Capital loss carryforwards 60.4 — +Book over tax depreciation and amortization 0.4 0.5 +Tenant lease expenses 10.6 4.3 +Environmental reserve 14.8 28.3 +Intangible Assets 1.3 — +Other 8.3 6.5 +Total gross deferred income tax assets 201.2 109.7 +Less valuation allowance ( 55.6 ) ( 26.7 ) +Net deferred income tax assets 145.6 83.0 +Deferred income tax liabilities: +Intangible assets ( 48.9 ) ( 76.2 ) +Tax over book depreciation and amortization ( 3.4 ) ( 9.4 ) +Other ( 3.8 ) ( 8.2 ) +Total deferred income tax liabilities ( 56.1 ) ( 93.8 ) +Net deferred income tax asset (liabilities) $ 89.5 $ ( 10.8 ) +The valuation allowance for deferred income tax assets as of December 30, 2023 and December 31, 2022 was $ 55.6 million and $ 26.7 million, respectively. The net increase in the total valuation allowance during fiscal 2023 was $ 28.9 million. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The valuation allowance for fiscal 2023 is also related to U.S. federal capital loss carryforwards. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions, and capital gains in the U.S. tax jurisdiction. During 2023, the Company sold one of its foreign subsidiaries which generated a tax capital loss of $ 417.8 million on the divestiture of that entity's stock. That tax capital loss was used to offset taxable gains related to the divestiture of various brand and non-core assets between 2022 and 2024 in the amount of $ 312.5 million. The remaining capital loss of $ 105.3 million has no immediate use and therefore has a full valuation allowance resulting in an increase to the valuation allowance of $ 24.1 million as of December 30, 2023. The current year change in the valuation allowance results in a decrease against the state deferred tax assets of $ 0.8 million, an increase related to state net operating loss carryforward of $ 2.3 million, and a net increase relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 3.3 million. +At December 30, 2023, the Company had foreign net operating loss carryforwards of $ 43.5 million, which have expirations ranging from 2024 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. federal capital loss carryforwards, federal net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 263.8 million, $ 27.1 million, and $ 65.8 million respectively, which have expirations ranging from 2029 to an unlimited term during which they are available to offset future U.S. federal taxable income. The Company had state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 234.4 million and $ 74.7 million respectively, which have expirations ranging from 2024 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.6 million, which are available for an unlimited carryforward period to offset future foreign taxes. +65 +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) 2023 2022 +Unrecognized tax benefits at beginning of the year $ 9.0 $ 10.9 +Increases related to current year tax positions 0.3 0.2 +Decreases related to prior year positions ( 5.1 ) ( 1.1 ) +Decreases relating to settlements with taxing authorities ( 0.7 ) ( 0.5 ) +Decrease due to lapse of statute ( 0.9 ) ( 0.5 ) +Unrecognized tax benefits at end of the year $ 2.6 $ 9.0 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 2.6 million and $ 9.0 million as of December 30, 2023 and December 31, 2022, respectively. During 2023, the Company released $ 5.1 million of unrecognized tax benefits related to net operating losses that were deemed to be fully limited based on the completion of a separate return loss year analysis. The release had no impact on the effective tax rate since the Company released both the deferred tax asset and contra deferred tax asset related to the net operating losses. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 0.5 million and $ 0.5 million as of December 30, 2023 and December 31, 2022. +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. +The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 1.1 million and $ 1.1 million for fiscal years 2023 and 2022. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 76.5 million at December 30, 2023. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +66 +15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) +Accumulated other comprehensive income represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +The change in accumulated other comprehensive income (loss) during fiscal years 2023 and 2022 is as follows: +(In millions) Foreign +currency +translation Derivatives Pension Total +Balance at January 1, 2022 $ ( 56.8 ) $ ( 8.9 ) $ ( 33.2 ) $ ( 98.9 ) +Other comprehensive income (loss) before reclassifications (1) +( 76.3 ) 25.4 22.6 ( 28.3 ) +Amounts reclassified from accumulated other comprehensive income (loss) — ( 19.3 ) +(2) +11.3 +(3) +( 8.0 ) +Income tax (expense) benefit — 4.7 ( 2.4 ) 2.3 +Net reclassifications +— ( 14.6 ) 8.9 ( 5.7 ) +Net current-period other comprehensive income (loss) (1) +( 76.3 ) 10.8 31.5 ( 34.0 ) +Balance at December 31, 2022 $ ( 133.1 ) $ 1.9 $ ( 1.7 ) $ ( 132.9 ) +Other comprehensive income (loss) before reclassifications (1) +12.6 ( 4.8 ) ( 6.6 ) 1.2 +Amounts reclassified from accumulated other comprehensive income (loss) 4.2 ( 18.8 ) +(2) +( 0.7 ) +(3) +( 15.3 ) +Income tax benefit — 4.6 0.2 4.8 +Net reclassifications +4.2 ( 14.2 ) ( 0.5 ) ( 10.5 ) +Net current-period other comprehensive income (loss) (1) +16.8 ( 19.0 ) ( 7.1 ) ( 9.3 ) +Balance at December 30, 2023 $ ( 116.3 ) $ ( 17.1 ) $ ( 8.8 ) $ ( 142.2 ) +(1) Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) Amounts related to foreign currency derivatives used to manage the volatility associated with inventory purchases in various currencies and deemed to be highly effective are included in cost of goods sold. Amounts related to foreign currency derivatives that are no longer deemed to be highly effective are included in other income. Amounts related to interest rate swaps are included in interest expense. +(3) Amounts reclassified are included in the computation of net pension expense. +16. FAIR VALUE MEASUREMENTS +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) December 30, 2023 December 31, 2022 +Financial assets: +Derivatives $ 1.8 $ 13.6 +Financial liabilities: +Derivatives $ ( 5.1 ) $ ( 1.3 ) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. +Nonrecurring Fair Value Measurements +Indefinite-lived intangible assets and goodwill are tested annually, or if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3). In the third quarter of 2023, based on the results of the impairment testing, the Company recognized impairment charges of $ 38.3 million to the Sperry ® trade name. In the fourth quarter of 2022, after completion of the annual impairment testing, the Company recorded a $ 48.4 million impairment charge for Sweaty Betty ® goodwill. The Company also recorded impairment charges of $ 191.0 million and +67 +$ 189.3 million to the Sperry ® and Sweaty Betty ® trade names, respectively , in fiscal 2022. Refer to Note 4, “Goodwill and Other Intangibles” for additional discussion on the Sperry ® goodwill impairment and the Sperry ® and Sweaty Betty ® trade name impairment. +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt are as follows: +(In millions) December 30, 2023 December 31, 2022 +Carrying value $ 920.8 $ 1,158.0 +Fair value 813.3 1,042.9 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +17. LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M Company changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets and Scotchgard™. +In May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion (“ppt”) combined for PFOA and PFOS, which the EPA reduced in June 2022 to 0.004 ppt and 0.02 ppt for PFOA and PFOS, respectively. In January 2018, the Michigan Department of Environmental Quality (“MDEQ”, now known as the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”)) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. On August 3, 2020, Michigan changed the standards for PFOA and PFOS in drinking water to 8 and 16 ppt, respectively, and set standards for four other PFAS substances. +Civil and Regulatory Actions of EGLE and EPA +On January 10, 2018, EGLE filed a civil action against the Company in the U.S. District Court for the Western District of Michigan under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”) and Parts 201 and 31 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has resulted in releases of PFAS at levels exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action"). Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, NREPA, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and common law nuisance. +On February 3, 2020, the parties entered into a consent decree resolving the EGLE Action, which was approved by U.S. District Judge Janet T. Neff on February 19, 2020 (the “Consent Decree”). Under the Consent Decree, the Company agreed to pay for an extension of Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million. The Company also agreed to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to assess the presence of PFAS in area groundwater. The Company’s activities under the Consent Decree are not materially impacted by either the drinking water standards that became effective on August 3, 2020, or the EPA’s revised advisory levels issued in June 2022. +On December 19, 2018, the Company filed a third-party complaint against 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the EGLE Action ("the 3M Action"). On June 20, 2019, +68 +the 3M Company filed a counterclaim against the Company in response to the 3M Action, seeking, among other things, contractual and common law indemnity and contribution under CERCLA and Part 201 of NREPA. On February 20, 2020, the Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company paid the Company a lump sum amount of $ 55.0 million during the first quarter of 2020. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a) with an effective date of February 1, 2018. The Order pertained to specified removal actions at the Company's Tannery and House Street sites, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites. On October 28, 2019, the EPA and the Company entered into an Administrative Settlement and Order on Consent (“AOC”) that supersedes the Order and addresses the agreed-upon removal actions outlined in the Order. The Company has completed the activities required by the AOC, and is awaiting the final review and determination from the EPA. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual and Class Action Litigation +Beginning in late 2017, individual lawsuits and three putative class action lawsuits were filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. The three putative class action lawsuits were subsequently refiled in the U.S. District Court for the Western District of Michigan as a single consolidated putative class action lawsuit. 3M Company has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit. In addition, the current owner of a former landfill and gravel mining operation sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS (this suit collectively with the individual lawsuits and putative class action, the “Litigation Matters”). +On January 11, 2022, the Company and 3M Company entered into a master settlement agreement with the law firm representing certain of the plaintiffs in the individual lawsuits included in the Litigation Matters, and each of these plaintiffs subsequently agreed to participate in the settlement. These plaintiffs’ lawsuits were dismissed with prejudice on or around April 25, 2022. +On December 9, 2021, the Company and 3M Company reached a settlement in principle to resolve certain of the remaining individual lawsuits included in the Litigation Matters, and the parties entered into definitive settlement agreements in March 2022. These plaintiffs’ lawsuits were dismissed with prejudice on June 14, 2022. The last remaining individual action included in the Litigation Matters was dismissed without prejudice on June 24, 2022. +In addition, in September 2022, the parties to the putative class action filed a motion for preliminary approval of a proposed class action settlement seeking to resolve the putative class action plaintiffs’ claims. On March 29, 2023, the court presiding over the putative class action granted final approval of the proposed settlement and dismissed the lawsuit with prejudice. +The last remaining Litigation Matter, the lawsuit filed by the current owner of a former landfill and gravel mining operations, was pending in Michigan state court but has been administratively stayed by the Court. +There were no developments during fiscal year 2023 that required the Company to change the amount accrued for the Litigation Matters described above. The Company made related payments of $ 37.8 million in connection with the Litigation Matters described above during fiscal year 2023. As of December 30, 2023, the Company had recorded liabilities of $ 2.7 million for certain of the Litigation Matters described above which are recorded as other accrued liabilities in the consolidated balance sheets. +In December 2018, the Company filed a lawsuit against certain of its historic liability insurers, seeking to compel them to provide a defense against the Litigation Matters on the Company's behalf and coverage for remediation efforts undertaken by, and indemnity provided by, the Company. The Company recognized certain recoveries from legacy insurance policies in 2023 and 2022, and continues pursuing additional recoveries through the lawsuit. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment, intellectual property, and consumer related matters. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available to the Company and reserves for liabilities that the Company has recorded, along with applicable insurance, it is management’s opinion that the outcome of these +69 +items, individually and in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +Environmental Liabilities +The following is a summary of the activity with respect to the environmental remediation reserve established by the Company: +Fiscal Year +(In millions) 2023 2022 +Remediation liability at beginning of the year +$ 74.1 $ 85.7 +Changes in estimate +( 5.8 ) 6.8 +Amounts paid +( 10.4 ) ( 18.4 ) +Remediation liability at the end of the year +$ 57.9 $ 74.1 +The reserve balance as of December 30, 2023 includes $ 31.3 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 26.6 million expected to be paid over the course of up to 25 years, recorded in other liabilities . +The Company's remediation activity at the Tannery property, House Street site and other relevant operations or disposal sites is ongoing. Although the Consent Decree has made near-term costs more clear, it is difficult to estimate the long-term cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to December 30, 2023 are as follows: +(In millions) 2024 2025 2026 2027 2028 Thereafter +Minimum royalties $ 1.3 $ — $ — $ — $ — $ — +Minimum advertising 2.9 3.0 3.1 3.2 3.3 — +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 1.5 million, $ 2.3 million and $ 2.3 million for fiscal years 2023, 2022 and 2021, respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 6.9 million, $ 6.5 million and $ 6.5 million for fiscal years 2023, 2022 and 2021, respectively. +18. BUSINESS SEGMENTS +The Company’s portfolio of brands are organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +70 +The Company's operating segments are the Active Group, Work Group, and Sweaty Betty ® . Sweaty Betty ® and the Active Group were evaluated and combined into one reportable segment because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. Other consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. Prior to the fourth quarter of 2023, Sperry ® , Keds ® , and Hush Puppies ® financial results were reported in the Lifestyle Group. The Lifestyle Group is no longer a reportable segment based upon how the Chief Operating Decision Maker, the Company's Chief Executive Officer, allocates resources to and assesses performance of the Company's operating segments. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s direct-to-consumer businesses. The Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +Company management uses various financial measures to evaluate the performance of the reportable segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. +Fiscal Year +(In millions) 2023 2022 2021 +Revenue: +Active Group $ 1,439.1 $ 1,570.2 $ 1,319.6 +Work Group 480.6 590.5 548.8 +Other 323.2 524.1 546.5 +Total $ 2,242.9 $ 2,684.8 $ 2,414.9 +Operating profit (loss): +Active Group $ 140.3 $ 198.4 $ 229.5 +Work Group 58.1 102.5 103.8 +Other 32.8 59.9 75.6 +Corporate ( 299.4 ) ( 569.2 ) ( 253.2 ) +Total $ ( 68.2 ) $ ( 208.4 ) $ 155.7 +Interest expense, net 63.5 47.3 37.4 +Debt extinguishment and other costs — — 34.3 +Other expense (income), net 2.5 ( 2.8 ) 3.7 +Earnings (loss) before income taxes $ ( 134.2 ) $ ( 252.9 ) $ 80.3 +71 +Fiscal Year +(In millions) 2023 2022 2021 +Depreciation and amortization expense: +Active Group $ 10.7 $ 8.1 $ 5.4 +Work Group 0.4 0.3 0.3 +Other 2.9 3.4 3.9 +Corporate 21.1 22.8 23.6 +Total $ 35.1 $ 34.6 $ 33.2 +Capital expenditures: +Active Group $ 9.7 $ 18.9 $ 5.0 +Work Group 0.1 0.4 0.4 +Other 0.1 5.2 1.8 +Corporate 4.7 12.0 10.4 +Total $ 14.6 $ 36.5 $ 17.6 +(In millions) December 30, +2023 December 31, +2022 +Total assets: +Active Group $ 1,183.9 $ 1,331.5 +Work Group 288.4 375.7 +Other 250.8 573.4 +Corporate 339.7 212.1 +Total $ 2,062.8 $ 2,492.7 +Goodwill: +Active Group $ 317.7 $ 314.4 +Work Group 60.3 59.6 +Other 49.1 111.0 +Total $ 427.1 $ 485.0 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) 2023 2022 2021 +United States $ 1,217.9 $ 1,563.1 $ 1,573.9 +Foreign: +Europe, Middle East and Africa 540.8 602.5 460.3 +Asia Pacific 253.2 245.7 161.6 +Canada 107.1 126.8 116.9 +Latin America 123.9 146.7 102.2 +Total from foreign territories 1,025.0 1,121.7 841.0 +Total revenue $ 2,242.9 $ 2,684.8 $ 2,414.9 +The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment and lease right-of-use assets, is as follows: +(In millions) December 30, +2023 December 31, +2022 January 1, +2022 +United States $ 131.9 $ 222.3 $ 205.8 +Foreign countries 82.6 88.6 61.4 +Total $ 214.5 $ 310.9 $ 267.2 +72 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2023, the Company sourced 100 % of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +19. VARIABLE INTEREST ENTITIES AND RELATED PARTY TRANSACTIONS +On December 17, 2023, the Company entered into a purchase agreement to sell a 40 % ownership interest in Gemini Asia Saucony, LLC, which was established for the purpose of holding, licensing and managing the intellectual property rights associated with the Saucony ® brand in China, Hong Kong and Macau, to XMS Sports Co. Limited for cash of $ 39.0 million. +Assets and Liabilities of Consolidated VIEs +The Company has joint ventures that source and market the Company’s footwear and apparel products in China. Based upon the criteria set forth in FASB ASC 810, Consolidation , the Company has determined two of the consolidated joint ventures are variable interest entities (VIEs) of which the Company is the primary beneficiary and, as a result, the Company consolidates these VIEs. The primary beneficiary determination is based on the relationship between the Company and the VIE, including contractual agreements between the Company and the VIE. The Company has determined that two of the VIEs that are consolidated meet the criteria to be classified as held for sale as of year end 2023, refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +Specifically, the Company has the power to direct the activities that are considered most significant to the entities’ performance and the Company has the obligation to absorb losses and the right to receive benefits that are significant to the entities. The other equity holder’s interests are reflected in “net earnings (loss) attributable to noncontrolling interests” in the Consolidated Statement of Operations and “Noncontrolling interest” in the Consolidated Balance Sheets. Assets held by the VIEs are only available to settle obligations of the respective entities. Holders of liabilities of these VIEs do not have recourse to the Company. +The following is a summary of these VIE’s assets and liabilities included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2023 2022 +Cash $ — $ 5.8 +Accounts receivable — 19.7 +Inventory — 16.0 +Other current assets — 2.4 +Noncurrent assets — 0.8 +Assets held for sale 51.6 — +Total assets 51.6 44.7 +Current liabilities — 9.6 +Noncurrent liabilities — 1.6 +Liabilities held for sale 15.4 — +Total liabilities $ 15.4 $ 11.2 +Nonconsolidated VIEs +The Company also has two joint ventures that are VIEs that are not consolidated as the Company does not have the power to direct the most significant activities that impact the VIEs' economic performance. The two VIEs distribute footwear and apparel products in the Asia Pacific region. The Company’s consolidated balance sheets in 2022 included $ 8.1 million in Other Assets related to VIEs for which the Company is not the primary beneficiary. The Company has determined that the VIEs that are not consolidated meet the criteria to be classified as held for sale as of year-end fiscal 2023, refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +73 +Related Party Transactions +In the normal course of business, the Company enters into transactions with related party equity affiliates. Related party transactions consist of the sale of goods, made at arm’s length, and other arrangements. For the fiscal years ended December 30, 2023 and December 31, 2022 the Company recognized net sales to equity affiliates totaling $ 66.5 million and $ 35.5 million, respectively. +The following table summarizes related party transactions included in the consolidated balance sheets. +Fiscal Year +(In millions) 2023 2022 +Accounts receivable due from related parties $ 15.4 $ 18.1 +Long term liabilities due to related parties 1.4 — +Long term assets due from related parties — 1.6 +20. DIVESTITURES AND ASSETS AND LIABILITIES HELD FOR SALE +Divestiture of Keds ® Business +On February 7, 2023 the Company entered into an Asset Purchase Agreement with Designer Brands, Inc. (the "Buyer") pursuant to which the Buyer agreed to purchase the global Keds ® business. The sale was effective as of February 4, 2023, in accordance with the terms and conditions of the Asset Purchase Agreement. +The following table summarizes the net gain recognized in connection with the divestiture: +(In millions) +Net proceeds $ 83.4 +Net assets disposed ( 65.9 ) +Direct costs to sell ( 1.6 ) +AOCI reclassification adjustment, foreign currency translation 4.2 +Gain on sale of business $ 20.1 +The Company determined that the divestiture of the Keds ® business did not represent a strategic shift that had or will have a major effect on the Consolidated Results of Operations, and therefore results were not classified as discontinued operations. The proceeds from the sales were used to reduce outstanding borrowings under the Revolving Facility. +Divestiture of U.S. Wolverine Leathers Business +On August 23, 2023, the Company completed the sale of its U.S. performance leathers business to its long-time customer, New Balance. The Company received $ 4.0 million in cash for the sale and recognized a gain on sale of $ 1.9 million. The assets sold, which were included in the Other segment category, consist of $ 2.1 million in inventory. +Divestiture of Hush Puppies ® intellectual property in China, Hong Kong, and Macau +On September 1, 2023, the Company entered into an asset purchase agreement to sell the Hush Puppies ® trademarks, patents, copyrights and domains in China, Hong Kong and Macau to its current sublicensee, Beijing Jiaman Dress Co., Ltd. for cash of $ 58.8 million and recognized a gain on sale of $ 55.8 million. The gain on sale is net of transaction related fees of $ 3.0 million. The transaction closed on September 14, 2023. The Company continues to own the Hush Puppies ® brand throughout the rest of the world. +Sale-Leaseback of Louisville Distribution Facility +On December 28, 2023, the Company completed a sale and leaseback transaction with an independent third party for the land, building and related fixed assets of its distribution center located in Louisville, Kentucky for a sale price of $ 23.5 million. The distribution center was leased back to the Company via a two year lease agreement which includes a one year renewal option. +74 +The transaction qualifies for sales recognition under the sale leaseback accounting requirements and the Company recorded a gain of $ 12.6 million. +Divestiture of Asia-based Leathers Business +On December 14, 2023, the Company completed the sale of its Asia-based performance leathers business to Interhides Public Company Limited, a current materials vendor of the Company. The Company received $ 8.2 million in cash for the sale. The assets sold, which were included in the Other segment category, consist of $ 8.2 million in inventory. +Assets and Liabilities Held for Sale +On January 10, 2024, the Company completed the sale of the global Sperry ® business and as of fiscal 2023 year-end, determined that the Sperry ® business met the criteria to be classified as held for sale. The Company received gross proceeds of $ 97.4 million in cash, subject to customary purchase price adjustments . The Company determined that the divestiture of the Sperry ® business does not represent a strategic shift that had or will have a major effect on the consolidated condensed results of operations, and therefore results of this business were not classified as discontinued operations. +Upon classification as held for sale, the Company compared the Sperry ® business' carrying value with its fair value, less costs to sell. Based upon the selling price, the Company estimated implied losses in excess of the carrying value of the Sperry ® business' long-lived assets. As a result, the Company recorded non-cash impairment charges totaling $ 95.0 million during fiscal 2023 to reduce the net carrying value of the Sperry ® business' long-lived assets to zero. Also during fiscal 2023, the Company recorded an impairment charge of $ 11.0 million related to assets that will not convey as part of the Sperry ® sale transactions and are not expected to be used within the Company’s other businesses. These charges are reported within the impairment of long-lived assets line on the consolidated statements of operations. This write-down includes a $ 1.0 million loss related to currency translation adjustments in accumulated other comprehensive loss. +On December 17, 2023, the Company entered into an agreement to sell the Company’s equity interest in the Merrell and Saucony China joint venture entities to Xtep International Holdings Limited ("Xtep"), its joint venture partner. On January 1, 2024, the Company completed the sale of and received cash of $ 22.0 million. The Company has determined that the Merrell and Saucony China joint venture entities meet the criteria to be classified as held for sale as of year-end 2023, and therefore have reclassified the related assets and liabilities as held for sale on the Consolidated Balance Sheets. The Company determined that the planned divestiture does not represent a strategic shift that had or will have a major effect on the consolidated condensed results of operations, and therefore results of this business were not classified as discontinued operations. +The Keds ® business and the performance leathers business met the criteria to be classified as held for sale as of year end 2022, and therefore reclassified the related assets and liabilities as held for sale on the Consolidated Balance Sheets as of year end 2022. As noted above, the Company completed the sale of both the Keds ® business and performance leathers business in fiscal 2023. +75 +The following is a summary of the major categories of assets and liabilities that have been classified as held for sale on the consolidated condensed balance sheets: +Fiscal Year +(In millions) 2023 2022 +Cash and cash equivalents $ 5.6 $ 4.0 +Accounts receivables, net 15.4 3.5 +Inventories 83.3 43.1 +Other current assets 2.9 — +Property, plant and equipment, net 3.8 — +Lease right-of-use assets +7.6 — +Goodwill 43.0 — +Indefinite-lived intangibles 67.0 11.4 +Amortizable intangibles, net 21.0 — +Other assets 7.8 5.9 +Impairment of carrying value ( 96.8 ) — +Total assets held for sale 160.6 67.9 +Accounts payable 4.8 8.1 +Lease liabilities 9.0 — +Accrued liabilities 9.0 0.7 +Other liabilities 1.4 — +Total liabilities held for sale $ 24.2 $ 8.8 +21. SUBSEQUENT EVENT +On January 10, 2024, the Company entered into a Purchase Agreement with ABG Intermediate Holdings 2 LLC, an affiliate of Authentic Brands Group LLC. (the "ABG Buyer"), pursuant to which the ABG Buyer agreed to purchase all of the outstanding equity of certain subsidiaries of the Company that own or hold for use intellectual property used by the Company exclusively in the footwear, apparel, and accessories business conducted by the Company under the Sperry ® brand. In addition, on January 10, 2024 the Company entered into an Inventory Purchase Agreement with Aldo U.S. Inc., an affiliate of the Aldo Group (the "Aldo Buyer"), pursuant to which the Aldo Buyer agreed to purchase certain inventory and other assets of the Sperry ® business, and to assume certain contracts of the Sperry ® business, including Sperry ® retail store leases. The aggregate purchase price under these two purchase agreements was approximately $ 97.4 million in cash, subject to customary purchase price adjustments . +On December 17, 2023, the Company and Xtep entered into a Purchase Agreement pursuant to which Xtep agreed to purchase the Company’s equity interest in the Merrell and Saucony joint venture entities (Saucony Brand Operations Ltd., Saucony Distribution Operations Ltd., Merrell Brand Operations Ltd. and Merrell Distribution Operations Ltd.), transitioning the business from a joint venture model to a license and distribution rights model under which Xtep will exclusively carry out the development, marketing and distribution of footwear, apparel and accessories for the Saucony and Merrell brands in China. The purchase price was approximately $ 22.0 million in cash, and the sale was effective January 1, 2024, in accordance with the terms and conditions of the Purchase Agreement. +76 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of December 30, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2024 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +77 +Valuation of goodwill and indefinite-lived intangibles +Description of the Matter +At December 30, 2023, the Company’s goodwill and indefinite-lived intangible assets were $427.1 million and $174.1 million, respectively. During 2023, the Company recognized impairment charges of $38.3 million associated with its Sperry indefinite-lived intangible asset. As discussed in Notes 1 and 4 of the consolidated financial statements, goodwill and indefinite-lived intangibles are tested for impairment at least annually. The impairment test for goodwill consists of measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. The impairment test for indefinite-lived intangible assets consists of measuring the fair value of the asset and comparing it to the asset’s carrying amount. +Auditing management’s annual impairment tests for goodwill and indefinite-lived intangible assets was complex due to the significant estimation uncertainty required in determining the fair values of certain reporting units and the Sperry and Sweaty Betty trade names. The significant assumptions used to estimate the fair values of certain reporting units and the Sperry and Sweaty Betty trade names included the forecasted revenue growth, EBITDA margin, and discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. Changes in these assumptions could have a significant impact on the fair values of certain reporting units and the Sperry and Sweaty Betty trade names, the amount of any impairment charge, or both. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the impairment review process. For example, we tested controls that address the risk of material misstatement relating to the valuation of certain reporting units and the Sperry and Sweaty Betty trade names, including management’s review of the significant assumptions described above and the completeness and accuracy of the data used to develop such estimates. +To test the estimated fair values of certain reporting units and the Sperry and Sweaty Betty trade names, our audit procedures included, among others, assessing the appropriateness of the valuation model used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the financial projections to current industry and economic trends and the historical accuracy of management’s estimates. We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 22, 2024 +78 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control Over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries’ internal control over financial reporting as of December 30, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 30, 2023, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 30, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the fiscal years ended December 30, 2023, December 31, 2022, and January 1, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 22, 2024 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 22, 2024 +79 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 30, 2023, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 30, 2023. +The effectiveness of the Company’s internal control over financial reporting as of December 30, 2023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 30, 2023 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. Other Information +(c) During the quarter ended December 30, 2023, no director or Section 16 officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or a non-rule 10b5-1 trading arrangement, in each case, as defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine World Wide, Inc. expected to be held on May 2, 2024 in sections "Election of Directors" and "Corporate Governance". The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct is posted on our website located at http://www.wolverineworldwide.com/investor-relations/corporate-governance/. We intend to disclose future amendments to certain provisions of the Code of Business Conduct, and waivers of the Code of Business Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver. +Item 11. Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Compensation Discussion and Analysis". +80 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Securities Ownership in Officers and Directors and Certain Beneficial Owners". +Equity Compensation Plan Information +The following table provides information about the Company’s equity compensation plans as of December 30, 2023: +Plan Category (1) +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights +(a) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights +(b) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans Excluding Securities Reflected in Column (a)) +(c) +Equity compensation plans approved by security holders +1,961,016 +(2), (3) +$ 22.56 8,085,425 +(4) +Equity compensation plans not approved by security holders +— — — +Total 1,961,016 $ 22.56 8,085,425 +(1) Each plan for which aggregated information is provided contains customary anti-dilution provisions that are applicable in the event of a stock split, stock dividend or certain other changes in the Company’s capitalization. +(2) Includes: (i) 1,772,382 stock options awarded to employees under the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and restated; and (ii) and 188,634 stock options awarded to non-employee directors under the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and restated. Column (a) does not include stock units credited to outside directors’ fee accounts or retirement accounts under the Outside Directors’ Deferred Compensation Plan. Stock units do not have an exercise price. Each stock unit credited to a director’s fee account and retirement account under the Outside Directors’ Deferred Compensation Plan will be converted into one share of common stock upon distribution. Column (a) also does not include shares of restricted or unrestricted common stock previously issued under the Company’s equity compensation plans. +(3) Of this amount, 10,959 options were not exercisable as of December 30, 2023 due to vesting restrictions. +(4) Comprised of: (i) 93,742 shares available for issuance under the Outside Directors’ Deferred Compensation Plan upon the retirement of the current directors or upon a change in control; and (ii) 7,991,683 shares issuable under the Stock Incentive Plan of 2016, as amended and restated. +The Outside Directors’ Deferred Compensation Plan is a supplemental, unfunded, nonqualified deferred compensation plan for non-employee directors. Beginning in 2006, the Company began paying an annual equity retainer to non-management directors in the form of a contribution under the Outside Directors’ Deferred Compensation Plan. Non-management directors may also voluntarily elect to receive, in lieu of some or all directors’ fees, a number of stock units equal to the amount of the deferred directors’ fees divided by the fair market value of the Company’s common stock on the date of payment. These stock units are increased by a dividend equivalent based on dividends paid by the Company and the amount of stock units credited to the participating director’s fee account and retirement account. Upon distribution, the participating directors receive a number of shares of the Company’s common stock equal to the number of stock units to be distributed at that time. Distribution is triggered by termination of service as a director or by a change in control of the Company and can occur in a lump sum, in installments or on another deferred basis. A total of 303,702 shares have been issued to a trust to satisfy the Company’s obligations when distribution is triggered and are included in shares the Company reports as issued and outstanding. +The Stock Incentive Plan of 2016, as amended and restated, is an equity-based incentive plan for officers, key employees, and directors. Such plan authorizes awards of stock options, restricted common stock, common stock, restricted stock units and/or stock appreciation rights. The Stock Incentive Plan of 2016, as amended and restated, provides that each share of restricted or unrestricted common stock and each restricted stock unit issued under the plan is counted as 2.6 shares against the total number of shares authorized for issuance under the plan. The number of securities listed as remaining available in column (c) of the table assumes only stock options will be issued under the plan in the future; each stock option counts as only one share against the total number of shares authorized for issuance under the plan. Actual shares available under the plan will be less to the extent that the Company awards restricted common stock, unrestricted common stock or restricted stock units under the plan. The numbers provided in this footnote and in column (c) will increase to the extent that options relating to the number of shares listed in column (a) of the table or other outstanding awards (e.g., shares of restricted or unrestricted stock, restricted stock units or stock appreciation rights) previously issued under the plan are canceled, surrendered, modified, exchanged for substitutes, expire or terminate prior to exercise or vesting because the number of shares underlying any such awards will again become available for issuance under the plan under which the award was granted. +81 +Of the total number of shares available under column (c), the number of shares with respect to the following plans may be issued other than upon the exercise of an option, warrant or right outstanding as of December 30, 2023: +• Outside Directors’ Deferred Compensation Plan: 93,742 +• Stock Incentive Plan of 2016, as amended and restated: 3,073,724 +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". +Item 14. Principal Accountant Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Independent Registered Public Accounting Firm". +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a) The following documents are filed as part of this report: +(1) Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• Consolidated Statements of Operations for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022. +• Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022. +• Consolidated Balance Sheets as of December 30, 2023 and December 31, 2022. +• Consolidated Statements of Cash Flows for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022. +• Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 30, 2023, December 31, 2022 and January 1, 2022. +• Notes to the Consolidated Financial Statements. +• Reports of Independent Registered Public Accounting Firm. +(2) Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Exhibit Number Document +2.1 +Share Purchase Agreement, dated as of July 31, 2021 by and among the Institutional Sellers, the Management Sellers, and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the period ended October 2, 2021. +2.2 +Management Warranty Deed, dated as of July 31, 2021, by and among the Warrantors and Wolverine World Wide, Inc. Incorporated by reference to Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for the period ended October 2, 2021. +82 +Exhibit Number Document +3.1 +Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 7, 2022. +4.1 +Description of the Registrant's Securities Registered Pursuant To Section 12 of The Securities Exchange Act of 1934. Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019. +4.2 +Senior Notes Indenture, dated August 26, 2021, among Wolverine World Wide, Inc., the guarantors named therein, and The Huntington National Bank. Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 26, 2021. +4.3 +Form of 4.000% Senior Notes due 2029. Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on August 26, 2021. +10.1 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.2 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.3 +Wolverine World Wide, Inc. Deferred Compensation Plan, Amended and Restated.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.4 +First Amendment to the Wolverine World Wide, Inc. Deferred Compensation Plan, dated as of December 29, 2020.* Incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.5 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.6 +Separation Agreement between Wolverine World Wide, Inc. and James D. Zwiers dated as of December 19, 2023.* +10.7 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10. 7 . +10.8 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10. 8 . +10.9 +Executive Severance Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.10 +Amendment, dated as of March 25, 2021, to the Executive Severance Agreement between Brendan Hoffman and the Company, dated as of September 8, 2020.* Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 26, 2021. +10.11 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.12 +Indemnification Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.13 +Employment Agreement between Isabel Soriano and the Company.* Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.14 +Employment Agreement between Christopher E. Hufnagel and the Company, dated September 7, 2023.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2023. +10.15 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.16 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.1 6 . +83 +Exhibit Number Document +10.17 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.18 +Sixth Amendment to the Wolverine Employees' Pension Plan.* Incorporated by reference to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 29, 2018. +10.19 +First Amendment to the Wolverine Employees' Pension Plan, dated as of December 2, 2020.* Incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.20 +Second Amendment to the Wolverine Employees' Pension Plan, dated as of December 9, 2021.* Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022. +10.21 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.22 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.23 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.24 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016, as amended and restated.* Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on March 26, 2021. +10.25 +2018 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2018. +10.26 +2019 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2019. +10.27 +2020 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 2020. +10.28 +2020 Form of Restricted Stock Agreement.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 22, 2020. +10.29 +2021 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.30 +2022 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.31 +2023 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2023. +10.32 +Form of Performance Stock Unit Agreement (2021 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.33 +Form of Performance Stock Unit Agreement (2021 - 2022 performance period).* Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.34 +Form of Performance Stock Unit Agreement (2021 - 2023 performance period).* Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.35 +Form of Performance Stock Unit Agreement (2022 - 2024 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.36 +Form of Performance Stock Unit Agreement (2023 - 2025 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2023. +10.37 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +84 +Exhibit Number Document +10.38 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.39 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +10.40 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.41 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.42 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.43 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +10.44 +2018 Replacement Facility Amendment, dated as of December 6, 2018 among the Company, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, Wells Fargo Bank, National Association, Bank of America, N.A. and HSBC Bank USA, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2018. +10.45 +Second Amendment, dated as of May 5, 2020, to the Amended and Restated Credit Agreement, dated as of December 6, 2018, among Wolverine World Wide, Inc., as parent borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, the other borrowers party thereto, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 6, 2020. +10.46 +2021 Replacement Facility Amendment and Reaffirmation Agreement, dated as of October 21, 2021, among Wolverine World Wide, Inc., as parent borrower, the Additional Borrowers party thereto, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on October 25, 2021. +10.47 +Cover Amendment to the Credit Agreement, dated as of April 10, 2023, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 2023. +10.48 +Fourth Amendment to the Credit Agreement , dated as of June 30, 2023, amon g Wolverin e World Wide, Inc. as borrower, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J. P . Morgan Europe Limited, as foreign currency agen t, Wells Fargo Bank, National Association, as syndication agen t and as a lender, Fifth Third Bank, as documentation age n t and as a lender, and PNC Bank, National Association , as documentat i on agent and as a lender. Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 2023. +85 +Exhibit Number Document +10.49 +Fifth Amendment to the Credit Agreement, dated as of December 21, 2023, among Wolverine World Wide, Inc. as borrower, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. +10.50 +Receivables Purchase Agreement dated as of December 7, 2022, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Wells Fargo Bank, N.A. as purchaser . Incorporate d by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022. +10.51 +First Amendment, dated as of June 30, 2023, to the Receivables Purchase Agreement dated as of December 7, 2022, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Wells Fargo, N.A. as purchaser. Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 2023. +10.52 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.53 +Wolverine World Wide, Inc. Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2019. +10.54 +Consent Decree by and among Wolverine World Wide, Inc., the State of Michigan, Plainfield Charter Township, and Algoma Township. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 7, 2020. +10.55 +Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 26, 2020. +10.56 +Amended Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 23, 2021. +10.57 +Trademark Acquisition Agreement by and among SR Holdings, LLC, Keds, LLC, Hanesbrands, Inc. and HBI Branded Apparel Enterprises, LLC dated June 30, 2022. Incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed on June 30, 2022. +10.58 +Asset Purchase Agreement dated as of February 7, 2023, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Vincent Camuto LLC and DBI Brands Management LLC, as purchaser. Incorporated by reference to Exhi bit 10.53 to the Co mpan y's Annual Report on Form 10-K for the fiscal year ended December 3 1, 2022. +10.59 +Purchase Agreement dated as of January 10, 2024, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and ABG Intermediate Holdings 2 LLC, as purchaser. +10.60 +Purchase Agreement dated as of January 10, 2024, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Aldo U.S. Inc., as purchaser. +21 +Subsidiaries of Registrant +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Executive Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +97 +Wolverine World Wide, Inc. Clawback Policy +101 +The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated Statements of Comprehensive Income (loss); (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Consolidated Financial Statements. +104 +The cover page of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023, formatted in Inline XBRL (included in Exhibit 101). +* Management contract or compensatory plan or arrangement. +86 +Item 16. Form 10-K Summary +None. +87 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: February 22, 2024 By: /s/ Christopher E. Hufnagel +Christopher E. Hufnagel +President and Chief Executive Officer (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Christopher E. Hufnagel President and Chief Executive Officer (Principal Executive Officer) February 22, 2024 +Christopher E. Hufnagel +/s/ Michael D. Stornant Executive Vice President, Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) February 22, 2024 +Michael D. Stornant +/s/ Nicholas T. Long Chairman of the Board February 22, 2024 +Nicholas T. Long +/s/ Stacia J.P. Andersen Director February 22, 2024 +Stacia J.P. Andersen +/s/ Jeffrey M. Boromisa Director February 22, 2024 +Jeffrey M. Boromisa +/s/ Jodi Bricker Director February 22, 2024 +Jodi Bricker +/s/ William K. Gerber Director February 22, 2024 +William K. Gerber +/s/ David T. Kollat Director February 22, 2024 +David T. Kollat +/s/ Brenda J. Lauderback Director February 22, 2024 +Brenda J. Lauderback +/s/ DeMonty Price Director February 22, 2024 +DeMonty Price +/s/ Kathleen Wilson-Thompson Director February 22, 2024 +Kathleen Wilson-Thompson +88 +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +(In millions) Balance at +Beginning of +Period +Charged to +Costs and +Expenses Deductions +(Describe) Balance at +End of +Period +Fiscal Year Ended December 30, 2023 +Allowance for credit losses $ 3.3 $ 5.0 $ 2.6 (A) $ 5.7 +Product returns reserve 15.3 134.6 136.8 (B) 13.1 +Allowance for cash discounts and customer markdowns 7.8 14.1 9.3 (C) 12.6 +Inventory valuation allowances 33.0 7.9 20.2 (D) 20.7 +Total $ 59.4 $ 161.6 $ 168.9 $ 52.1 +Fiscal Year Ended December 31, 2022 +Allowance for credit losses $ 4.0 $ 1.8 $ 2.5 (A) $ 3.3 +Product returns reserve 16.6 106.0 107.3 (B) 15.3 +Allowance for cash discounts and customer markdowns 7.7 10.9 10.8 (C) 7.8 +Inventory valuation allowances 10.7 30.0 7.7 (D) 33.0 +Total $ 39.0 $ 148.7 $ 128.3 $ 59.4 +Fiscal Year Ended January 1, 2022 +Allowance for credit losses $ 6.7 $ ( 2.4 ) $ 0.3 (A) $ 4.0 +Product returns reserve 15.6 52.5 51.5 (B) 16.6 +Allowance for cash discounts and customer markdowns 11.2 9.4 12.9 (C) 7.7 +Inventory valuation allowances 9.1 5.6 4.0 (D) 10.7 +Total $ 42.6 $ 65.1 $ 68.7 $ 39.0 +(A) Accounts charged off, net of recoveries. +(B) Actual customer returns. +(C) Discounts given to customers. +(D) Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2023/0000110471-24-000057/filing_metadata.csv b/raw/filings/0000110471/2023/0000110471-24-000057/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..5ac83d5ea8e7cbf994dd931f051e2fdf28f29ea3 --- /dev/null +++ b/raw/filings/0000110471/2023/0000110471-24-000057/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2024-02-22,2023-12-30,2024-02-22T19:08:29.000Z,0000110471-24-000057,www-20231230.htm,FORM 10-K,15893748,1,1,https://www.sec.gov/Archives/edgar/data/110471/000011047124000057/www-20231230.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047124000057/,2023,2023,1 diff --git a/raw/filings/0000110471/2023/0000110471-24-000057/item1.txt b/raw/filings/0000110471/2023/0000110471-24-000057/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..c2c2ea649c39671a37dde239376924f135bdd014 --- /dev/null +++ b/raw/filings/0000110471/2023/0000110471-24-000057/item1.txt @@ -0,0 +1,77 @@ +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom ("U.K.") and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; and Saucony ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands are organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s direct-to-consumer businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Active Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you come from, who you love, or how you move. With a persistent focus on innovation, thoughtful design and rigorous testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +5 +Saucony ® : Saucony ® is a leading purpose-driven performance running lifestyle brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award-winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Widely recognized for award-winning technologies, Saucony ® innovations include PWRRUN™ PB, a beaded superfoam that delivers high-performance energy return; PWRRUN+™ a cushioning foam for a plush ride; SPEEDROLL™ Technology, a blend of premium foam and forward geometry to promote a faster transition; and PWRTRAC™, a trail-specific outsole rubber. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as in Company-owned Saucony ® retail stores and an eCommerce site. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, Europe and Asia and the world’s best luxury retailers, including Selfridges, Harrods, Neiman Marcus and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Chaco ® : For more than 30 years Chaco ® has been creating premium footwear for outdoor adventure in and out of water. Originating as an innovation in the whitewater rafting world, Chaco ® is the vibrant outdoor brand designing footwear for all walks of life and for a lifetime of adventure. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers. +2. Work Group +Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path: men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories made to outfit those working in the core trades across the world. The brand is known for its heritage, durability, and best-in-class performance comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children, sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders and U.S. Military members. Civilian uniform users include police officers, firefighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear : Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HYTEST ® Safety Footwear : The HYTEST ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. HYTEST ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck +6 +retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers. +Other Businesses +In addition to its reportable segments, the Company operates sourcing operations, a multi-brand direct-to-consumer business, the licensing of its Stride Rite ® brand and Hush Puppies ® brand. The Company’s results included in Other also included Sperry ® , which was sold in 2024, and Keds ® , which was sold in 2023. The Company also operated a performance leathers business, which was sold in 2023. +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® is a market leader in both boat shoes and wet weather boots, and has expanded its business into casuals and sneakers. The brand is primarily distributed through Sperry.com and in Company owned Sperry ® retail stores, as well as leading premium and better lifestyle retailers. Effective January 10, 2024 the Company sold the global Sperry ® business to Authentic Brands Group LLC. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Ever since the creation of the iconic Keds ® Champion "sneaker" back in 1916, Keds ® has held the belief that when we feel comfortable inside and out, we can leap forward and make our marks on the world. This belief continues to inspire and drive us every day. Keds ® designs every product to support everyone—to give them the versatility, comfort, and style they need to confidently live as their truest selves. Keds ® is focused on driving unique marketing and product stories through Keds.com and distributing footwear at leading footwear retailers worldwide. Effective February 4, 2023 the Company sold the global Keds ® business to Designer Brands, Inc. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through eCommerce sites. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide. The Company signed a multi-year license agreement in 2023 to license the Hush Puppies ® brand in the United States and Canada. The Company sold the rights to the Hush Puppies ® trademarks, patents, copyrights and domains in China, Hong Kong and Macau to its current sublicensee, Beijing Jiaman Dress Co., Ltd. The transaction closed on September 14, 2023. +Stride Rite ® Licensed Business: With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands. The Wolverine Leathers Division was sold in two seperate transactions in 2023. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Direct-to-Consumer Division: The multi-brand direct-to-consumer division includes retail stores that sell footwear and apparel from the Company's brand portfolio and other brands. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that drive consumer demand creation, fuel consumer obsession and foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel, always-on approach and includes various means of delivery across digital, print and +7 +radio, including advertising through event sponsorship, social networking sites, event sponsorships, in-store activation and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective tools for marketing and selling to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own direct-to-consumer business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company divested its ownership interests in the China joint venture entities effective January 1, 2024. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +8 +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Wolverine ® , Bates ® , Bounce ® , Chaco ® , HYTEST ® , Merrell ® , Saucony ® , Stride Rite ® , Sweaty Betty ® , and related logos and design marks. The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license was recently renewed and the license term runs through December 31, 2028 and the Harley-Davidson ® license term runs through December 31, 2024. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically reflecting an increase in net working capital requirements near the end of the first and third fiscal quarters as the Company builds inventory to support peak shipping periods. Historically, cash provided by operating activities is higher in the second half of the fiscal year due to collection of wholesale channel receivables and higher direct-to-consumer sales during the holiday season. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under its revolving credit facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events, including pandemics. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +Human Capital Resources +Employee Profile : As of December 30, 2023, the Company had approximately 4,100 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and the Company works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for team members. Our engaging recruitment marketing website tells a compelling story of opportunity and inclusion, and highlights the Company culture. With a focus on modern recruitment systems and strategies we aim to provide a seamless transition for new employees. Development starts on day one with an enriching day one experience designed to help employees +9 +start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints throughout the employee lifecycle, including regular pulse and check in surveys. Insights from these surveys are valuable to understanding employees' needs, which helps us develop strategies to maintain positive employee well-being. The Company's annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of current and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the Company's employees’ respective geographic region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state-of-the-art fitness center, child care, and doggie day care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders in which we partner with top educational institutions. This program focuses on sharpening participants' business leadership capabilities needed to grow the Company's business and people leadership capabilities needed to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is critical to our future success. To enhance employees career development, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals. +Diversity, Equity, and Inclusion: Wolverine Worldwide is committed to creating a diverse and inclusive culture where everyone feels a sense of belonging and being valued, and to building a team that is representative of everywhere the Company's employees work, live, and do business. The Company started this journey in 2020, focusing on creating a framework, establishing relationships, and working with expert outside partners to lay a foundation on which to build. +The Company's newly established internal DE&I office plans to continue and amplify the progress made to date to advance the Company's diversity, equity and inclusion goals. The Company encourages individuals to support these goals, including through internal Employee Resource Groups that connect, celebrate, and support communities across the organization. The Company offers employees a comprehensive diversity, equity, and inclusion learning program which includes learning about inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2023/0000110471-24-000057/item13.txt b/raw/filings/0000110471/2023/0000110471-24-000057/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c6b4e0ce38d9f5c5ef9827895af49bfa95096deb --- /dev/null +++ b/raw/filings/0000110471/2023/0000110471-24-000057/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". \ No newline at end of file diff --git a/raw/filings/0000110471/2023/0000110471-24-000057/item9a.txt b/raw/filings/0000110471/2023/0000110471-24-000057/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..697f03802d53008394cb47edb04fc33b0ed06bc9 --- /dev/null +++ b/raw/filings/0000110471/2023/0000110471-24-000057/item9a.txt @@ -0,0 +1,8 @@ +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 30, 2023, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 30, 2023. +The effectiveness of the Company’s internal control over financial reporting as of December 30, 2023 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 30, 2023 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2023/0000110471-24-000057/rp_note.txt b/raw/filings/0000110471/2023/0000110471-24-000057/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..eea023a1833c7f40e27f75ecf52a867d00656ea0 --- /dev/null +++ b/raw/filings/0000110471/2023/0000110471-24-000057/rp_note.txt @@ -0,0 +1,30 @@ +19. VARIABLE INTEREST ENTITIES AND RELATED PARTY TRANSACTIONS +On December 17, 2023, the Company entered into a purchase agreement to sell a 40 % ownership interest in Gemini Asia Saucony, LLC, which was established for the purpose of holding, licensing and managing the intellectual property rights associated with the Saucony ® brand in China, Hong Kong and Macau, to XMS Sports Co. Limited for cash of $ 39.0 million. +Assets and Liabilities of Consolidated VIEs +The Company has joint ventures that source and market the Company’s footwear and apparel products in China. Based upon the criteria set forth in FASB ASC 810, Consolidation , the Company has determined two of the consolidated joint ventures are variable interest entities (VIEs) of which the Company is the primary beneficiary and, as a result, the Company consolidates these VIEs. The primary beneficiary determination is based on the relationship between the Company and the VIE, including contractual agreements between the Company and the VIE. The Company has determined that two of the VIEs that are consolidated meet the criteria to be classified as held for sale as of year end 2023, refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +Specifically, the Company has the power to direct the activities that are considered most significant to the entities’ performance and the Company has the obligation to absorb losses and the right to receive benefits that are significant to the entities. The other equity holder’s interests are reflected in “net earnings (loss) attributable to noncontrolling interests” in the Consolidated Statement of Operations and “Noncontrolling interest” in the Consolidated Balance Sheets. Assets held by the VIEs are only available to settle obligations of the respective entities. Holders of liabilities of these VIEs do not have recourse to the Company. +The following is a summary of these VIE’s assets and liabilities included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2023 2022 +Cash $ — $ 5.8 +Accounts receivable — 19.7 +Inventory — 16.0 +Other current assets — 2.4 +Noncurrent assets — 0.8 +Assets held for sale 51.6 — +Total assets 51.6 44.7 +Current liabilities — 9.6 +Noncurrent liabilities — 1.6 +Liabilities held for sale 15.4 — +Total liabilities $ 15.4 $ 11.2 +Nonconsolidated VIEs +The Company also has two joint ventures that are VIEs that are not consolidated as the Company does not have the power to direct the most significant activities that impact the VIEs' economic performance. The two VIEs distribute footwear and apparel products in the Asia Pacific region. The Company’s consolidated balance sheets in 2022 included $ 8.1 million in Other Assets related to VIEs for which the Company is not the primary beneficiary. The Company has determined that the VIEs that are not consolidated meet the criteria to be classified as held for sale as of year-end fiscal 2023, refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +73 +Related Party Transactions +In the normal course of business, the Company enters into transactions with related party equity affiliates. Related party transactions consist of the sale of goods, made at arm’s length, and other arrangements. For the fiscal years ended December 30, 2023 and December 31, 2022 the Company recognized net sales to equity affiliates totaling $ 66.5 million and $ 35.5 million, respectively. +The following table summarizes related party transactions included in the consolidated balance sheets. +Fiscal Year +(In millions) 2023 2022 +Accounts receivable due from related parties $ 15.4 $ 18.1 +Long term liabilities due to related parties 1.4 — +Long term assets due from related parties — 1.6 \ No newline at end of file diff --git a/raw/filings/0000110471/2023/0000110471-24-000057/rpt_disclosure.txt b/raw/filings/0000110471/2023/0000110471-24-000057/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..9a6b39ca888835dbc15d1d5f9b56be3124f12efa --- /dev/null +++ b/raw/filings/0000110471/2023/0000110471-24-000057/rpt_disclosure.txt @@ -0,0 +1,34 @@ +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS +Since December 31, 2023, the Company has not engaged in any “related person” transactions with any person who is or was during the last fiscal year a director, executive officer, nominee for director or holder of 5% or more of Company voting securities, affiliate or any member of the immediate family of the foregoing persons. +RELATED PERSON TRANSACTIONS POLICY +The Board adopted written policies and procedures regarding related person transactions. They require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +The aggregate amount involved exceeds or is expected to exceed $120,000 since the beginning of Wolverine Worldwide's last completed fiscal year; +(2) +The Company or any of its subsidiaries is a participant; and +(3) +Any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +Any employment compensation paid to an executive officer of the Company if the Compensation and Human Capital Committee approved or recommended to the Board of Directors for approval of such compensation; +(2) +Any compensation paid to a director for service as a director of the Company; +(3) +Any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%; +(4) +Any transaction in which the Related Person's interest arises solely from the ownership of the Company's common stock and all holders of the Company's common stock received the same benefit on a pro rata basis (e.g., a dividend); or +(5) +Any transaction with another publicly traded company where the Related Person's interest arises solely from the ownership of more than 5% of the Company's common stock and the ownership of a non-controlling interest in the other publicly traded company. +Related Person +Any: +(a) +Person who is or was at any time since the beginning of the Company's last completed fiscal year even if they do not presently serve in that role, an executive officer, a director or, to the extent information regarding such nominee is being presented in a proxy or information statement relating to the election of that nominee as a director, a nominee for election as a director; +(b) +Beneficial owner of greater than five percent of Wolverine Worldwide's common stock; or +(c) +Immediate family member* of any of the foregoing. +* +Immediate family member is defined as a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law, and anyone residing in such person's home (other than a tenant or employee). +The Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the Related Person's interest in the transaction, and other factors that it deems relevant. 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13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +For the fiscal year ended December 28, 2024 +or +☐ 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 001-06024 +WOLVERINE WORLD WIDE, INC. +(Exact name of registrant as specified in its charter) +Delaware 38-1185150 +State or other jurisdiction of +incorporation or organization (I.R.S. Employer +Identification No.) +9341 Courtland Drive N.E. +Rockford , Michigan 49351 +(Address of principal executive offices) (Zip Code) +Registrant’s telephone number, including area code (616) 866-5500 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class Trading Symbol(s) Name of each exchange on which registered +Common Stock, $1 Par Value WWW New York Stock Exchange +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. Yes þ No ¨ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ +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. Yes þ No ¨ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨ +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 þ Accelerated filer ☐ +Non-accelerated filer +¨ +Smaller reporting company ☐ +Emerging growth company ☐ +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 Act. ¨ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ +If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨ +Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant +to §240.10D-1(b). ¨ +Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ +The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant based on the closing price on the New York Stock Exchange on June 28, 2024, the last business day of the registrant’s most recently completed second fiscal quarter: $ 1,056,116,428 . Number of shares outstanding of the registrant’s Common Stock, $1 par value as of February 7, 2025: 80,371,566 . +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the definitive proxy statement for the registrant’s annual stockholders’ meeting expected to be held May 1, 2025 are incorporated by reference into Part III of this report. +Table of Contents +PART I +Item 1. +Business +5 +Item 1A. +Risk Factors +10 +Item 1B. +Unresolved Staff Comments +20 +Item 1C. +Cybersecurity +20 +Item 2. +Properties +21 +Item 3. +Legal Proceedings +21 +Item 4. +Mine Safety Disclosures +21 +Supplemental Item. +Executive Officers of the Registrant +21 +PART II +Item 5. +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6. +Reserved +24 +Item 7. +Management’s Discussion and Analysis of Financial Condition and Results of Operations +24 +Item 7A. +Quantitative and Qualitative Disclosures About Market Risk +33 +Item 8. +Financial Statements and Supplementary Data +35 +Item 9. +Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +76 +Item 9A. +Controls and Procedures +76 +Item 9B. +Other Information +76 +Item 9C. +Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +76 +PART III +Item 10. +Directors, Executive Officers and Corporate Governance +76 +Item 11. +Executive Compensation +76 +Item 12. +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +77 +Item 13. +Certain Relationships and Related Transactions, and Director Independence +78 +Item 14. +Principal Accountant Fees and Services +78 +PART IV +Item 15. +Exhibits, Financial Statement Schedules +78 +Item 16. +Form 10-K Summary +83 +SIGNATURES +84 +Appendix A: Financial Statement Schedule +A-1 +3 +FORWARD-LOOKING STATEMENTS +This document contains “forward-looking statements,” which are statements relating to future, not past, events. In this context, forward-looking statements often address management’s current beliefs, assumptions, expectations, estimates and projections about future business and financial performance, national, regional or global political, economic and market conditions, and the Company itself. Such statements often contain words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Uncertainties that could cause the Company’s performance to differ materially from what is expressed in forward-looking statements include, but are not limited to, the following: +• changes in general economic conditions, employment rates, business conditions, interest rates, tax policies and other factors affecting consumer spending in the markets and regions in which the Company’s products are sold; +• the inability for any reason to effectively compete in global footwear, apparel and direct-to-consumer markets; +• the inability to maintain positive brand images and anticipate, understand and respond to changing footwear and apparel trends and consumer preferences; +• the inability to effectively manage inventory levels; +• increases or changes in duties, tariffs, quotas or applicable assessments in countries of import and export; +• foreign currency exchange rate fluctuations and currency restrictions; +• supply chain and capacity constraints, production and distribution disruptions, including service interruptions at shipping and receiving ports, reduction in operating hours, labor shortages, and facility closures resulting in production delays at the Company’s manufacturers, quality issues, price increases or other risks associated with foreign sourcing; +• the cost, including the effect of inflationary pressures and availability of raw materials, inventories, services and labor for contract manufacturers; +• changes in relationships with, including the loss of, significant wholesale customers; +• risks related to the significant investment in, and performance of, the Company’s direct-to-consumer operations; +• risks related to expansion into new markets and complementary product categories; +• the impact of seasonality and unpredictable weather conditions; +• the impact of changes in general economic conditions and/or the credit markets on the Company’s manufacturers, distributors, suppliers, joint venture partners and wholesale customers; +• changes in the Company’s effective tax rates; +• failure of licensees or distributors to meet planned annual sales goals or to make timely payments to the Company; +• the risks of doing business in developing countries and politically or economically volatile areas; +• the ability to secure and protect owned intellectual property or use licensed intellectual property; +• legal compliance and litigation risks, including with respect to federal, state and local laws and regulations relating to the protection of the environment, environmental remediation and other related costs, and environmental effects on human health; +• risks of breach of the Company’s databases or other systems, or those of its vendors, which contain certain personal information, payment card data or proprietary information, due to cyberattack or other similar events; +• strategic actions, including new initiatives and ventures, acquisitions and dispositions, and the Company’s success in integrating acquired businesses, including Sweaty Betty ® ; +• risks related to stockholder activism; +• the risk of impairment to goodwill and other intangibles; +• the success of the Company's restructuring and realignment initiatives undertaken from time to time; and +• changes in future pension funding requirements and pension expenses. +These or other uncertainties could cause a material difference between an actual outcome and a forward-looking statement. The uncertainties included here are not exhaustive and are described in more detail in Part I, Item 1A: “Risk Factors” of this Annual Report on Form 10-K. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company does not undertake an obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Any standards of measurement and performance made in reference to our environmental, social, governance and other sustainability plans and goals are developing and based on assumptions, and no assurance can be given that any such plan, initiative, projection, goal, commitment, expectation or prospect can or will be achieved. +4 +PART I +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom ("U.K.") and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; and Saucony ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; and +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s direct-to-consumer businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Active Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside. After over 40 years, with a persistent focus on innovation, design and testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +Saucony ® : Saucony ® is a leading purpose-driven performance running lifestyle brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award-winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional +5 +style needs as well. Widely recognized for award-winning technologies, Saucony ® innovations include INCREDIRun foam, a revolutionary TPEE compound engineered to provide exceptional efficiency; PWRRUN™ PB, a beaded superfoam that delivers high-performance energy return; PWRRUN+™ a cushioning foam for a plush ride; and SPEEDROLL™ Technology, a blend of premium foam and forward geometry to promote a faster transition. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, mall specialty and sporting goods retailers, as well as via an eCommerce site and in Company-owned Saucony ® retail stores. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous and trusted for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials designed to outlast, outperform and outfit active women at all life stages. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, United States, Europe, New Zealand and Asia and in the world’s best luxury retailers, including Selfridges, Harrods and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Chaco ® : For more than 35 years Chaco ® has been inspiring new generations to take on everyday adventures. Originating as an innovator in the whitewater rafting world, Chaco ® continues to design footwear for all walks of life and for a lifetime of adventure, in and out of water. Chaco ® products are distributed primarily though the Chaco ® eCommerce site and other leading online and brick and mortar retailers. +2. Work Group +Wolverine ® : For more than 140 years, Wolverine ® has existed to support people who forge their own path: those who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories made to outfit those working in the core trades across the world. The brand is known for its heritage, durability, and best-in-class performance comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over three decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men and women, sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders. Civilian uniform users include police officers, firefighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear : Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HYTEST ® Safety Footwear : The HYTEST ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including metatarsal guards, steel toe, composite toe, nano toe, electrical hazard protection, static dissipating, puncture resistant and conductive footwear. HYTEST ® footwear is distributed primarily through a distributor network with Shoemobile ® mobile trucks and retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and through direct sales arrangements with large industrial customers. +6 +Other Businesses +In addition to its reportable segments, the Company operates sourcing operations, a multi-brand direct-to-consumer business, the licensing of its Stride Rite ® brand and Hush Puppies ® brand. The Company's results included in Other also include brands and businesses that the Company sold in 2023 and 2024, as noted below. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. As a result of the decision to license the brand in North America in 2023, Hush Puppies® became a fully global licensed brand with over 560 Hush Puppies stores and multiple eCommerce sites across the globe. Hush Puppies®, with its basset hound icon, is one of the most well-known and loved brands worldwide. The Company sold the rights to the Hush Puppies ® trademarks, patents, copyrights and domains in China, Hong Kong and Macau to its current sublicensee, Beijing Jiaman Dress Co., Ltd. The transaction closed on September 14, 2023. +Stride Rite ® Licensed Business: With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Direct-to-Consumer Division: The multi-brand direct-to-consumer division includes retail stores that sell footwear and apparel from the Company's brand portfolio and other brands. +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. Effective January 10, 2024 the Company sold the global Sperry ® business to Authentic Brands Group LLC. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Effective February 4, 2023 the Company sold the global Keds ® business to Designer Brands, Inc. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Wolverine Leathers Division was sold in two separate transactions in 2023. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that drive consumer demand creation, fuel consumer obsession and foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel, always-on approach and includes various means of delivery across digital, print and radio, including advertising through event sponsorship, social networking sites, event sponsorships, in-store activation and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective tools for marketing and selling to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +7 +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own direct-to-consumer business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from a joint venture that markets the Company’s branded products in Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company divested its ownership interests in the China joint venture entities effective January 1, 2024. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include but are not limited to Hush Puppies ® , Wolverine ® , Bates ® , Bounce ® , Chaco ® , HYTEST ® , Merrell ® , Saucony ® , Stride Rite ® , Sweaty Betty ® , and related logos and design marks. The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license term runs through December 31, 2028 and the Harley-Davidson ® license term runs through December 31, 2029. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically reflecting an increase in net working capital requirements near the end of the first and third fiscal quarters as the Company builds inventory to support peak shipping periods. Historically, cash provided by operating +8 +activities is higher in the second half of the fiscal year due to collection of wholesale channel receivables and higher direct-to-consumer sales during the holiday season. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under its revolving credit facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +Human Capital Resources +Employee Profile : As of December 28, 2024, the Company had approximately 3,100 domestic and foreign retail, distribution, office and sales employees. The Company values its employees and works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while aiming to ensure opportunities for growth and development for team members. Our engaging recruitment marketing website tells a compelling story of opportunity and inclusion, and highlights the Company culture. With a focus on modern recruitment systems and strategies we aim to provide a seamless transition for new employees. Development starts on day one with an enriching day one experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints throughout the employee lifecycle, including regular pulse and check in surveys. Insights from these surveys are valuable to understanding employees' needs, which helps us develop strategies to maintain positive employee sentiment and well-being. The Company's annual talent planning process provides invaluable data to help retain key talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of current and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the Company's employees’ respective geographic region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state-of-the-art fitness center, child care, and doggie day care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. Through partnership with Harvard Business School, our new manager leadership development program fosters collaboration and teaches managers leadership skills needed to build, retain, and inspire our teams. The Company's internal global leadership programs teach skills needed to lead through transformation and build key leadership capabilities needed for the Company to +9 +grow. The Company also provides high potential assessments and executive coaching to its leadership to build capabilities needed to grow the Company’s business and talent. To enhance all corporate employees’ career development and growth, the Company offers a vast library of expert-led courses covering business, technical, and creative skills, quick reference guides, toolkits and internal one-on-one professional coaching. +Inclusion and Belonging : Wolverine World Wide is committed to creating an inclusive culture where everyone feels valued and respected, and all have an equal opportunity to succeed. The Company recently launched UN1TED, the goal of which is to amplify the progress made to date in advancing the Company's inclusion and belonging initiatives. The Company has internal Employee Resource Groups open to all employees that connect, celebrate, and support communities across the organization. In addition, the Company offers employees a comprehensive inclusion learning program which includes learning about inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . +Item 1A. Risk Factors +Business and Operational Risks +The Company’s operating results could be adversely affected if it is unable to maintain its brands’ positive images with consumers or anticipate, understand and respond to changing footwear and apparel trends and consumer preferences. +The popularity of particular designs and categories of footwear and apparel, with consumers generally changes over time. The Company’s success depends in part on its ability to anticipate, understand and respond to changing footwear and apparel trends and consumer preferences in a timely manner. If the Company is unable to maintain and improve its competitive position, maintain or enhance the images of its brands, timely and appropriately respond to new competition, changing consumer preferences and evolving footwear and apparel trends, consumers may consider the Company's brands’ images to be outdated and associate its brands with styles that are no longer popular, which would decrease demand for its products. Such failures could result in loss of market share, reduced sales, excess inventory, trade name impairments, lower gross margin and other adverse impacts on the Company’s operating results. +Significant capacity constraints, production disruptions, inventory management, quality issues, price increases and other risks associated with foreign sourcing could increase the Company’s operating costs and adversely impact the Company’s business and reputation. +The Company sources a substantial majority of its products from third-party manufacturers in foreign countries, predominantly in the Asia Pacific region. The Company may experience difficulties with its manufacturers, including reductions in production capacity, failures to meet production deadlines, inventory management issues, failure to meet quality standards, or increases in labor and other manufacturing costs. The Company does not have long-term contracts with its third-party manufacturers and its future results depend partly on its ability to maintain its relationships with third-party manufacturers. +Foreign manufacturing is subject to a number of risks, including work stoppages, transportation delays and interruptions, political instability, foreign currency exchange rate fluctuations, changing economic conditions, expropriation, nationalization, the imposition of tariffs, including recent U.S. tariffs imposed or threatened to be imposed on other countries and any retaliatory actions taken by such countries, import and export controls and other non-tariff barriers and changes in governmental policies. Various factors could significantly impair the Company's ability to meet customer demands and produce its products in a cost-effective manner, including adverse developments in trade or political relations with China or other countries where it sources its products, or a shift in these countries' manufacturing capacities away from footwear and apparel to other industries or +10 +adverse developments, such as pandemics or other health crises that cause significant production and shipping delays. Any of these events could adversely effect the Company’s business, results of operations and financial position. +The Company’s ability to import products in a timely and cost-effective manner may also be affected by issues that affect transportation and warehousing providers, such as fluctuations in freight costs, port and shipping capacity, labor disputes or severe weather. These issues have in the past and may in the future delay importation of products or require the Company to locate alternative ports or warehousing providers. Alternatives may not be available on short notice or could result in higher costs, which could have an adverse impact on the Company’s business and financial condition. +Pandemics, including COVID-19 and other infectious disease outbreaks have had and could continue to have a material adverse effect on the company's business. +The Company's business could be adversely affected by infectious disease outbreaks, which may negatively affect the regional and global economy, including by disrupting consumer spending and global supply chains, and increasing the volatility of financial markets. These conditions following the onset of the COVID-19 pandemic led to a decline in discretionary spending by consumers that had a negative effect on the Company's financial condition and results of operations in 2020. Outbreaks of disease and actions taken in response, have in the past materially negatively impacted, and could in the future materially negatively impact, the Company's workforce, business, operations, and financial results in many ways. Potential future impacts to the Company’s business related to a health crisis, include, among others: +• The inability of employees, suppliers and other business providers to carry out tasks at ordinary levels of performance due to measures taken to limit the spread of infectious diseases. +• Decreased retail traffic due to store closures, social distancing measures, reduced operating hours, and/or changes in consumer behavior. +• Wholesale and distributor customer order cancellation and decreased consumer demand for the Company's products as a result of decreased consumer spending due to general macroeconomic conditions, decreased disposable income and increased unemployment. +• Decline in the performance or financial condition of the Company’s major wholesale customers as a result of retail store closures, bankruptcy or liquidation. +• Disruption to the operations of the Company’s distribution centers and its third-party manufacturers because of facility closures, reductions in operating hours, labor or material shortages, travel limitations or mass transit disruptions. +• Additional expenses related to mitigating the impact of a health crisis on regular operations. +• Supply chain disruption affecting the Company's ability to receive and distribute goods and increasing supply chain costs. +• Increased cyber security risk due to the increase in the number of employees working remotely. +• Volatility in the availability and prices for commodities for raw materials used in the Company's products and related inflationary pressures. +The occurrence of a health crisis may also affect the Company's operating and financial results in a manner that is not presently known to the Company or that the Company does not currently believe presents significant risks to its operations. +Labor disruptions could adversely affect the Company’s business. +The Company’s business depends on its ability to source and distribute products in a timely and cost-effective manner. Labor disputes at or that affect factories that produce the Company’s goods, shipping ports, tanneries, transportation carriers, retail stores or distribution centers create significant risks for the Company’s business as they may in work slowdowns, stoppages, lockouts, strikes or other disruptions. Any such disruption may cause inventory shortages, delayed or canceled orders and unanticipated inventory accumulation, each of which may negatively impact the Company’s results of operations and financial position. +If the Company is unable to hire qualified persons for, or retain and continue to develop, its workforce, its results of operations could be adversely affected. +The Company's success depends on its ability to attract and retain qualified personnel, including in its product, eCommerce, and leadership teams. Competition for such personnel in the Company's industry is intense. The Company’s ability to hire and retain qualified personnel may be affected by a number of factors, including: its ability to attract and motivate employees; competition from other companies for qualified personnel; and the Company’s ability to offer employees remote work opportunities. If the Company is unable to hire and retain employees who perform at a high level, its business, including cash flows, results of operations, employee satisfaction, and reputation, could be adversely affected. +11 +A significant reduction in wholesale customer purchases of the Company’s products, wholesale customers negotiating more favorable terms, or wholesale customers' failure to pay for the Company’s products in a timely manner could adversely affect the Company’s business. +The Company’s financial success depends on its wholesale customers continuing to purchase its products. Sales to the Company’s wholesale customers are generally on an order-to-order basis and are subject to wholesale customers' rights of cancellation and rescheduling. In fiscal 2022, the Company experienced a higher rate than usual of wholesale customer cancellations as retail customers sought to manage higher inventory levels and supply chain disruption. If any of the Company’s major wholesale customers experiences a significant downturn in its business, or fails to remain committed to the Company’s products, these customers may reduce or discontinue purchases from the Company, which could have an adverse effect on the Company’s results of operations and financial position. +The Company extends credit to its wholesale customers based on an evaluation of each wholesale customer’s financial condition. A wholesale customer's financial difficulties could cause the Company to reduce or stop doing business with that customer. The Company’s inability to collect from its wholesale customers or a cessation or reduction of sales to certain wholesale customers because of credit concerns could have an adverse effect on the Company’s business, results of operations and financial position. +Retail consolidation could lead to fewer wholesale customers, wholesale customers seeking more favorable price, payment or other terms from the Company and a decrease in the number of stores that carry the Company’s products. In addition, changes in distribution channels, such as the continued growth of eCommerce and related competitive pressures, and the sale of private label products by major retailers, could have an adverse effect on the Company’s results of operations and financial position. +The Company’s direct-to-consumer operations continue to require substantial investment and commitment of resources and are subject to numerous risks and uncertainties. +The Company’s direct-to-consumer operations, including brick and mortar locations and its eCommerce and mobile channels, require substantial fixed investment in equipment and leasehold improvements, information systems, cyber-security infrastructure, inventory and personnel. The Company also has substantial operating lease commitments for retail space. Due to the high fixed-cost structure of the Company’s brick and mortar direct-to-consumer operations, the closure or poor performance of any stores could result in significant lease termination costs, write-offs of equipment and leasehold improvements and employee-related costs. The Company has made and will continue to make significant investments in building technologies and digital capabilities. The success of its direct-to-consumer operations also depends on the Company’s ability to identify and adapt to changes in consumer spending patterns and retail shopping preferences, including the shift from brick and mortar to eCommerce and mobile channels and the continuing evolution of omni-channel retailing. The Company’s failure to respond to these factors successfully could adversely affect the Company’s direct-to-consumer business, limit the Company's ability to develop and expand the omni-channel experience for customers or damage its reputation and brands, any of which may have an adverse effect on the Company’s results of operations and financial position. +The Company’s reputation and competitive position depend on its third-party manufacturers, distributors, licensees and others complying with applicable laws and ethical standards. +The Company cannot ensure that its independent contract manufacturers, third-party distributors, third-party licensees and others with which it does business comply with all applicable laws and ethical standards. If a party with which the Company does business is found to have violated applicable laws or ethical standards, the Company could be subject to negative publicity that damages its reputation, negatively affects the value of its brands and subjects the Company to legal risks. +The Company’s attempts to protect its brands through approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of its licensed products may not be successful as the Company cannot completely control its licensees' use of its licensed brands. The misuse of a Company brand by a licensee could adversely affect the value of such brand. +Disruption of the Company’s eCommerce platform or other information technology systems could adversely affect the Company’s business. +The Company’s information technology systems, including its eCommerce platform, are critical to the operations of its business. Any material interruption, unauthorized access, impairment or loss of data integrity or malfunction of these systems could severely impact the Company’s business. For example, system failures and disruptions could prevent access to the Company's online services, preclude store transactions, and impede product manufacturing and shipping and financial reporting. The Company’s information technology systems may be disrupted by natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, denial-of-service attacks, computer viruses, physical or electronic break-ins, or similar events. System redundancy may be ineffective or inadequate, and the Company’s disaster recovery planning may +12 +not be sufficient for all eventualities. Costs, problems and interruptions due to the implementation of new or upgraded systems, or maintenance of existing systems, could also disrupt or reduce the efficiency of the Company's operations. Additionally, the Company may be adversely affected if it is unable to improve, upgrade, maintain, and expand its technology systems. +Problems affecting the Company's logistics and distribution systems could adversely affect its ability to deliver its products to the market. +The Company relies on owned and independently operated distribution facilities to transport, warehouse and ship products to its customers. The Company’s logistics and distribution systems include computer-controlled and automated equipment, which are subject to a number of risks related to, data accuracy, security breaches or computer viruses, software or hardware malfunction, power interruptions or other system failures. Substantially all of the Company’s products are distributed from a relatively small number of locations. Distribution center operations could be interrupted by earthquakes, floods, fires or other natural disasters or other events over which the Company has no control, such as pandemics. In addition, the Company's distribution capacity depends upon the timely performance of services by third parties, including the transportation of products to and from the Company's distribution facilities. The Company’s business interruption insurance may not adequately protect the Company from the adverse effects of significant disruptions of distribution activities, such as the loss of customers or an erosion of brand image. Problems affecting the performance of the Company's distribution system could adversely affect its results of operations and its ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies. +The Company faces risks associated with its growth strategies including acquiring and disposing of businesses. +The Company has expanded in part through strategic acquisitions, and it may continue to do so if it can identify and successfully acquire suitable acquisition candidates. Acquisitions involve numerous risks, including risks inherent in entering markets in which the Company may not have prior experience; potential loss of an acquired business's significant customers or key personnel; managing geographically-remote operations; and potential diversion of management’s attention from other aspects of the Company’s business. Acquisitions may cause the Company to incur debt or result in dilutive issuances of its equity securities, write-offs of goodwill and substantial amortization expenses associated with other intangible assets. If financing for future acquisitions is not available on favorable terms, such acquisitions would be more expensive. Any such financing may have terms that restrict the Company’s operations. The Company may not be able to successfully integrate the operations of any acquired businesses and achieve the expected benefits of any acquisitions. In addition, the Company may not consummate a potential acquisition for a variety of reasons, but still incur material costs in connection with an acquisition that it cannot recover. The failure to achieve the expected benefits of strategic acquisitions in the future, or consummate a potential acquisition after incurring material costs, could have an adverse effect on the Company’s business, results of operations and financial position. +From time to time, the Company may seek to sell one or more businesses, or sell or license one or more brands. For example, as part of the Company’s strategy to invest in brands that offer the greatest opportu nities for growth, the Company sold the global Sperry ® business in 2024. These transactions may involve challenges and risks. There can be no assurance that future divestitures will occur, or as to the potential value created by a completed transaction. The process of exploring strategic alternatives or selling a business could cause uncertainty and negatively impact our ability to attract, retain and motivate key employees. In addition, the Company expends costs and management resources to complete divestitures and manage post-closing arrangements. Any failures or delays in completing divestitures could have an adverse effect on the Company’s financial results and ability to execute its strategy. +The Company’s international operations may be affected by legal, regulatory, political and economic risks. +The Company’s ability to conduct business in new and existing international markets, and to continue to source a substantial majority of its products from foreign countries, is subject to legal, regulatory, political and economic risks. These include: +• the burdens of complying with foreign laws and regulations, including trade and labor restrictions; +• compliance with U.S. and other countries’ laws relating to foreign operations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business; and +• new tariffs or other barriers in international markets, including China. +The Company is also subject to general social, political and economic risks in connection with its international operations, including: +• social and political instability, war and terrorist attacks; +• differences in business culture and laws governing relationships with employees and business partners; +• changes in diplomatic and trade relationships, including with China, Canada, Mexico and other U.S. trading partners; and +13 +• changes in general economic conditions in specific countries or markets. +Changes in regulatory, geopolitical, social or economic policies and other factors may have an adverse effect on the Company’s business or require the Company to exit a particular market or significantly modify its current business practices. +The Company is also subject to risks related to doing business in developing countries and economically volatile areas, such as nationalization by local governmental authorities of the Company’s, its distributors’, or its licensees’ assets; slower payment of invoices; and restrictions on the Company’s ability to repatriate foreign currency or receive payment of amounts owed by third-party distributors and licensees. Commercial laws in these areas may not be well developed or consistently administered, and new unfavorable laws may be retroactively applied. Any of these risks could have an adverse impact on the Company’s prospects and results of operations in these areas. +Foreign currency exchange rate fluctuations could adversely impact the Company’s business. +Changes in foreign currency exchange rates may impact the Company’s financial results positively or negatively in any given period, which may make it difficult to compare the Company’s operating results from different periods. Foreign currency exchange rate fluctuations may also adversely impact third parties that manufacture the Company’s products by increasing their costs of production and raw materials and making such costs more difficult to finance, thereby raising prices for the Company, its distributors and its licensees. The Company’s hedging strategy may not successfully mitigate the Company’s foreign currency exchange rate risk. For a more detailed discussion of the risks related to foreign currency exchange rate fluctuations, see Item 7A: “Quantitative and Qualitative Disclosures About Market Risk.” +The Company's foreign subsidiaries and foreign distributors purchase Company products in U.S. dollars and the cost of those products varies depending on the applicable foreign currency exchange rate. This impacts the price charged to foreign customers and in turn, the amount of royalties paid to the Company by foreign distributors in U.S. dollars. When the U.S. dollar strengthens relative to foreign currencies, the Company's revenues and profits denominated in foreign currencies are reduced when converted into U.S. dollars and the Company's margins may be negatively impacted by the increase in product costs. The Company may seek to mitigate the negative impacts of foreign currency exchange rate fluctuations through price increases and further actions to reduce costs, but the Company may not be able to fully offset the impact, if at all. The Company’s success depends, in part, on its ability to manage these various foreign currency impacts. +The Company’s quarterly sales and earnings may fluctuate, and the Company or securities analysts may not accurately estimate the Company’s financial results, which may result in volatility, or a decline, in the Company's stock price. Decreases in the returns provided to the Company's stockholders may ultimately adversely affect its business, results of operations and financial condition. +The Company’s quarterly sales and earnings can vary due to a number of factors, many of which are beyond its control, including: +• Orders from major wholesale customers, which may change delivery schedules, change the mix of products they order or cancel orders without penalty. +• Changes to the Company's estimated annual tax rate, which is based on projections of its domestic and international operating results for the year, which the Company reviews and revises as necessary each quarter. +• Certain manufacturing and transportation costs, changes in product sales mix, geographic sales trends, weather conditions, customer demand, consumer sentiment and currency exchange rate fluctuations. +As a result of these and other factors, the Company’s operating results will vary from quarter to quarter and the results for any particular quarter may not be indicative of results for the full year. In addition, various securities analysts follow the Company’s financial results and issue reports that include the analysts’ estimates of future Company performance, which are often different from the Company’s estimates. Any shortfall in sales or earnings from the levels expected by investors or securities analysts could cause a decrease in the trading price of the Company’s common stock. +Decreases in the trading price of the Company's stock may adversely affect its stockholders' returns. Such adverse effects, as well as other factors, may cause stockholders to take actions to involve themselves in the strategic direction and governance, including through private engagement, public campaigns, stockholder proposals and proxy contests. Responding to these actions can be costly and time-consuming and could divert the attention of the board and senior management from managing the Company's operations. +Changes in general economic conditions and other factors affecting consumer spending could adversely affect the Company’s sales, costs, operating results or financial position. +The Company’s results of operations depend on factors affecting consumer disposable income and spending patterns such as general economic conditions, inflation, employment rates, credit availability, business conditions, interest rates, consumer +14 +confidence and tax policy in the markets and regions in which the Company or its third-party distributors and licensees operates. Customers may defer or cancel purchases of the Company’s products due to uncertainty about global, regional or local economic conditions, and how such conditions may impact them. Prior declines in disposable income and consumer spending have adversely affected demand for the Company’s products, and could further adversely affect demand and the Company's results of operations. If the Company reduces the prices of its products, offers additional promotions or increases marketing efforts due to decreases in consumer spending, the Company's profitability could decline. +The Company is subject to inflationary pressures, including increased costs of raw materials, transportation, labor and other aspects of its business, which the Company may not be able to offset with cost savings or price increases on its products. If inflationary pressures continue, and the Company is unable to pass along price increases or further reduce costs, the Company's results of operations will be negatively impacted. +The Company operates in competitive industries and markets. +The Company competes with a large number of wholesalers, and retailers of footwear and apparel, and direct-to-consumer footwear and apparel companies. Many have larger customer and consumer bases, and/or greater financial, technical or marketing resources than the Company, particularly its competitors in the apparel and direct-to-consumer businesses. The Company’s competitors may have brands with greater name recognition; implement more effective marketing campaigns; adopt more aggressive pricing policies; make more attractive offers to potential employees, distribution partners and manufacturers; or respond more quickly to changes in consumer preferences. The Company’s continued ability to sell its products at competitive prices and to meet shifts in consumer preferences quickly will affect its sales. If the Company is unable to respond effectively to competitive pressures, its results of operations and financial position may be adversely affected. +Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations. +The Company's results of operations depend on weather conditions and its ability to react to changes in weather conditions. The Company markets and sells footwear and apparel suited for specific seasons, such as sandals for the summer season and boots for the winter season. Significant variations in weather conditions from those typical for a season, such as an unusually cold and rainy summer or an unusually warm and dry winter, may adversely affect consumer demand for seasonally appropriate products. Lower demand for seasonally appropriate products may result in excess inventory, forcing the Company to sell these products at significantly discounted prices, which would adversely affect the Company’s results of operations. Conversely, if weather conditions increase demand for seasonal products early in the season, this may reduce inventory levels needed to meet customers’ needs later in that same season. +Extreme weather conditions can also adversely impact the Company’s business, results of operations and financial position. If extreme weather events disrupt or close operations at distribution centers, the Company could incur higher costs and experience longer lead times to distribute its products to its retail stores, wholesale customers or eCommerce consumers. Extreme weather conditions can also decrease shopping traffic or cause the Company or its wholesale customers to close retail stores, which could have an adverse effect on the Company’s results of operations and financial position. +Climate change, and related legislative and regulatory responses to climate change, may adversely impact the Company’s business. +There is growing concern that climate changes could cause significant changes in weather patterns around the globe and increase the frequency and severity of natural disasters. This could have a long-term adverse impact on the Company’s business and results of operations by increasing the effects described in the risk factor “Unseasonable or extreme weather conditions could adversely affect the Company’s results of operations” and decreasing agricultural productivity in certain regions, which may limit availability and/or increase the cost of certain raw materials, such as cotton and leather. Concern over climate change may result in new or additional legal, legislative, regulatory, and compliance requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation, and utility increases, which could adversely affect the Company’s business and results of operations. Domestic and international regulatory efforts are evolving, including the potential international alignment of such efforts, and the Company cannot determine what final regulations will be enacted, modified, or reversed or the ultimate impact on its business. +Changes in general economic conditions and/or the credit markets affecting the Company's distributors, suppliers and retailers could adversely affect the Company’s results of operations and financial position. +Negative trends in global economic conditions may adversely impact the Company's third-party distributors’, suppliers’ and retailers’ ability to meet their obligations to provide the Company with the materials and services it needs at the prices, terms or levels as such third-parties have historically, which could adversely impact the Company’s ability to meet consumers’ demands and, in turn, the Company's results of operations and financial position. +15 +In addition, if the Company’s third-party distributors, suppliers and retailers are not able to obtain financing on favorable terms, or at all, they may delay or cancel orders for the Company’s products or fail to meet their obligations to the Company in a timely manner, either of which could adversely impact the Company’s sales, cash flow and operating results. +Global political and economic uncertainty could adversely impact the Company’s business. +Concerns regarding acts of terrorism or regional and international conflicts and concerns regarding public health threats, such as COVID-19, have created and may in the future create significant global economic and political uncertainties that may adversely affect consumer demand, acceptance of U.S. brands in international markets, foreign sourcing of products, shipping and transportation, product imports and exports and the sale of products in foreign markets, any of which could adversely affect the Company’s ability to source, manufacture, distribute and sell its products. +In addition, an economic downturn, whether actual or perceived, a decrease in economic growth rates or an otherwise uncertain economic outlook in markets in which the Company operates could adversely effect the Company. +Financial Risks +The Company’s operating results depend on effectively managing inventory levels. +The Company’s ability to effectively manage its inventories and accurately forecast demand are important factors in its operations. Inventory shortages can impede the Company’s ability to meet demand and, consequently, adversely affect business relationships with retail customers, diminish brand loyalty and decrease sales. Conversely, excess inventory can result in lower gross margins if the Company lowers prices in order to liquidate inventory. In addition, inventory may become obsolete as a result of changes in consumer preferences. The Company’s business, results of operations and financial position could be adversely affected if it is unable to effectively manage its inventory. +Increases or changes in duties, quotas, tariffs and other trade restrictions could adversely impact the Company’s sales and profitability. +The Company’s products manufactured overseas and imported into other countries are subject to customs duties. Review of the customs information submitted by the Company may result in the assessment of additional duties or penalties. Additional U.S. or foreign customs duties, quotas, tariffs, anti-dumping duties, safeguard measures, cargo restrictions, the loss of most favored nation trading status or other trade restrictions, including those due to changes in trade relations between the U.S. and other countries, may be imposed on the importation of the Company’s products in the future. The imposition of such costs or restrictions in countries where the Company operates, as well as in countries where its third-party distributors and licensees operate, could result in increases in the cost of the Company’s products and adversely affect its sales and profitability. +Increases in the cost of raw materials, labor and services could adversely affect the Company’s results of operations. +The Company’s ability to competitively price its products depends on the prices of commodities, such as cotton, leather, rubber, petroleum, cattle, pigskin hides, and other raw materials, used to make and transport its products, as well as the prices of equipment, labor, transportation and shipping, insurance and health care. The cost of commodities, equipment, services and materials is subject to change based on availability and general economic and market conditions that are difficult to predict. Various conditions, such as diseases affecting the availability of leather, affect the cost of the Company's products. Increases in costs for commodities, equipment, services and materials could have a negative impact on the Company’s results of operations and financial position. +An increase in the Company’s effective tax rate or negative determinations by domestic or foreign tax authorities could have an adverse effect on the Company’s results of operations and financial position. +A significant amount of the Company’s earnings are generated by its Canadian, European and Asia Pacific subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. As a result, the Company’s income tax expense has historically differed from the tax computed at the U.S. statutory income tax rate due to discrete items and because the Company did not provide for U.S. taxes on non-cash undistributed earnings that it intends to permanently reinvest in foreign operations. The Company’s future effective tax rates could be unfavorably affected by a number of factors, including, but not limited to, changes in the tax rates in jurisdictions in which the Company generates income; changes in, or in the interpretation of, tax rules and regulations in the jurisdictions in which the Company does business; or decreases in the amount of earnings in countries with low statutory tax rates. An increase in the Company’s effective tax rate could have an adverse effect on its results of operations and financial position. +The Company’s income tax returns are subject to examination by domestic and foreign tax authorities. The Company regularly assesses the likelihood of outcomes resulting from these examinations to determine the adequacy of its provision for income taxes and establishes reserves for potential adjustments that may result from these examinations. The final determination of any of these examinations could have an adverse effect on the Company’s results of operations and financial position. +16 +An impairment of goodwill or other intangibles could have an adverse impact to the Company’s results of operations. +The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangibles represents the fair value of trade names and other acquired intangibles as of the acquisition date. Goodwill and other acquired intangibles expected to contribute indefinitely to the Company’s cash flows are not amortized but must be evaluated by the Company at least annually for impairment. If the carrying amounts of one or more of these assets are not recoverable based upon discounted cash flow and market-approach analyses, the carrying amounts of such assets are impaired by the estimated difference between the carrying value and estimated fair value. An impairment charge could adversely affect the Company’s results of operations, such as the impairments recorded associated with the Sweaty Betty ® trade name and goodwill in fiscal 2022. +The Company’s current level of indebtedness could adversely affect the Company by decreasing business flexibility and increasing borrowing costs. +The Company has debt outstanding under a senior secured credit agreement (“Credit Agreement”) and senior notes. The Credit Agreement and the indenture governing the senior notes impose customary operating and financial restrictions on the Company, including restrictions that may limit the Company’s ability to engage in acts that may be in its best interests. These covenants restrict the ability of the Company and certain of its subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other indebtedness; or make investments. In addition, the Credit Agreement requires the Company to maintain specified financial ratios and satisfy other financial condition tests. +These restrictive covenants may limit the Company’s ability to finance future operations or capital needs or to engage in other business activities. The Company’s ability to comply with any financial covenants could be materially affected by events beyond its control and the Company may be unable to satisfy any such requirements. If the Company fails to comply with these covenants, it may need to seek waivers or amendments of such covenants, seek alternative or additional sources of financing or reduce its expenditures. The Company may be unable to obtain such waivers, amendments or alternative or additional financing on favorable terms or at all. +Legal and Regulatory Risks +If the Company is unsuccessful in establishing and protecting its intellectual property, the value of its brands could be adversely affected. +The Company’s ability to remain competitive depends upon its continued ability to secure and protect trademarks, patents and other intellectual property rights in the U.S. and internationally. The Company relies on a combination of trade secret, patent, trademark, copyright and other laws, license agreements and other contractual provisions and technical measures to protect its intellectual property rights; however, some countries’ laws do not protect intellectual property rights to the same extent as U.S. laws. +The Company’s business could be significantly harmed if it is not able to protect its intellectual property or if it was found to infringe on other persons’ intellectual property rights. Any intellectual property lawsuits or threatened lawsuits in which the Company is a plaintiff or a defendant could cost the Company a significant amount of time and money and distract management’s attention from operating the Company’s business. If the Company does not prevail on any intellectual property claims, it may have to change its manufacturing processes, products or trade names, any of which could reduce its profitability. +In addition, some of the Company’s branded footwear operations are operated pursuant to licensing agreements with third-party trademark owners. As these agreements end, whether expired by their terms or terminated early for breach, the Company may be forced to stop selling the related products. Expiration or termination of any of these license agreements could have an adverse effect on the Company’s business, results of operations and financial position. +Changes in employment laws and regulations and other related changes may lead to higher employment and pension costs for the Company. +Changes in employment laws and regulations and other factors could increase the Company’s employment costs. The Company’s employment costs include costs of health care and retirement benefits, including U.S.-based defined benefit pension plans. The annual cost of benefits can vary significantly depending on various factors, including changes in the assumed or actual rate of return on pension plan assets, a change in the discount rate or mortality assumptions used to determine the annual service cost related to defined benefit plans, a change in the method or timing of meeting pension funding obligations and the rate of health care cost inflation. Increases in the Company’s overall employment and pension costs could have an adverse effect on the Company’s business, results of operations and financial position. +17 +Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to the Company’s environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks. +Companies are facing increasing and frequently evolving scrutiny globally from customers, regulators, investors, employees, other stakeholders and the media, including social media, related to their ESG practices and disclosure as expectations for, and support or criticism/skepticism of, such matters continues to evolve. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, board and workforce diversity, labor conditions, human rights, and cybersecurity and data privacy. Third parties have developed proprietary ratings or analyses of companies based on certain ESG metrics. Increased ESG-related compliance costs could increase the Company’s overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or other stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory reporting, diligence, and disclosure, and the Company cannot determine waht final regulations will be enacted, modified, or reversed or the ultimate impact on its business. The Company’s ESG initiatives and goals may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve and assumptions that are subject to change. The Company may be subject to heightened reputational and operational risk and compliance costs related to the ESG initiatives and goals it discloses and may also face negative impacts from consumers who do not support its ESG initiatives and goals. Complying with new regulations could increase the Company’s costs and adversely impact results of operations. The Company’s pursuit or its failure or perceived failure to meet stakeholders’ expectations, as well as adverse incidents, could negatively impact the Company’s stock price, results of operations, or reputation and increase its cost of capital, and investors, consumers and other stakeholders could lose confidence in or disparage the Company and its brands, damaging the Company's reputation and negatively impacting operations. +The Company’s and its vendors’ databases containing personal information and payment card data of the Company’s customers, employees and other third parties could be breached, which could subject the Company to adverse publicity, litigation, fines and expenses. +The protection of the Company’s customer, associate and Company data is critically important. The Company relies on its networks, databases, systems and processes, as well as those of third parties such as vendors, to protect its proprietary information and information about its customers, employees and vendors. The Company's operations have become increasingly centralized and dependent upon automated information technology processes, and a portion of the Company’s business operations is conducted electronically, increasing the risk of attack that could cause loss or misuse of data, system failures or disruption of operations. If unauthorized parties gain access to the Company's networks or databases, they may be able to steal, publish, delete or modify the Company’s private and sensitive third-party or employee information. Improper activities may result in compromise or breach of the Company’s networks, payment card terminals or other payment systems. The techniques used to obtain unauthorized access to sensitive data change frequently and often are not recognized until launched against a target; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures. Any failure to maintain the security of the Company’s customers’ sensitive information, or data belonging to it or its suppliers, could put it at a competitive disadvantage, result in deterioration of its customers’ confidence in it, and subject it to potential litigation, liability, fines and penalties, resulting in a possible adverse impact on its financial condition and results of operations. The Company's insurance coverage may be insufficient to cover all losses and would not remedy damage to the Company's reputation. In addition, employees may intentionally or inadvertently cause security breaches that result in unauthorized release of personal or confidential information. In such circumstances, the Company could be held liable to its customers, other parties or employees, be subject to regulatory or other actions for breaching privacy laws or failing to adequately protect such information or respond to a breach. This could result in costly investigations and litigation, civil or criminal penalties, operational changes and negative publicity that could adversely affect the Company’s reputation and its results of operations and financial position. +The Company’s failure to comply an evolving set of laws and industry standards relating to consumer information, could negatively impact the Company’s business and results of operations. +The Company collects, maintains and uses data it receives through online activities and other consumer interactions in its business, including its marketing programs. The Company’s ability to do so is subject to certain restrictions in third party contracts and a broad array of evolving international, federal and state laws and industry standards relating to privacy, cybersecurity, data protection and consumer protection. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another, may conflict with other rules or may conflict with the Company’s practices. If the Company is not able to comply with any applicable requirements, the Company's reputation could be negatively impacted and +18 +the Company may be subject to proceedings or actions against it by governmental entities or others that could adversely affect its business, financial condition, cash flows and results of operations. +As data privacy, cybersecurity and marketing laws change, the Company may incur additional costs to remain in compliance. For example, the General Data Protection Regulation ("GDPR"), which applies in all European Union member states, introduced new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. GDPR increased the Company’s responsibility and potential liability in relation to personal data that it collects, processes and transfers, and required the Company to implement additional controls designed to ensure compliance with the new rules. If applicable laws become more restrictive, the Company’s ability to effectively engage customers via personalized marketing may decrease, which could potentially impact growth. For example, the California Consumer Privacy Act (“CCPA”) limits how the Company may collect and use personal data and other states have adopted, or are considering enacting, similar laws that may affect the Company's data processing practices and policies. +Because the Company processes and transmits payment card information, the Company is subject to card brand operating rules (“Card Rules”) requiring it to comply with the Payment Card Industry (“PCI”) Data Security Standard (the “Standard”). The Standard is a comprehensive set of requirements relating to payment account data security. The Company’s failure to comply with Card Rules or the Standard may result in fines or restrictions on, or loss of, its ability to accept payment cards. Under certain circumstances specified in the Card Rules, the Company may be required to submit to periodic audits, self-assessments or other assessments of its compliance with the Standard. The results of any audit, self-assessment or other test may require the Company to undertake remediation efforts, which may be costly or result in periods of time during which the Company cannot accept payment cards. Further, changes in technology and processing procedures may result in changes in the Card Rules that require the Company to make significant investments in its operating systems and technology that may adversely impact its business and results of operations. +The Company’s operations are subject to environmental and workplace safety laws and regulations, and costs or claims related to these requirements could adversely affect the Company’s business. +The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants, the management and disposal of hazardous materials and wastes, employee exposure to workplace hazards, and the investigation and remediation of contamination resulting from releases of hazardous materials. Failure to comply with legal requirements could result in, among other things, revocation of required licenses, enforcement actions, fines and civil and criminal liability. Various third parties have brought, and in the future could bring actions against the Company alleging health-related or other harm arising from non-compliance. The Company may incur investigation, remediation or other costs related to releases of hazardous materials or other environmental conditions at its currently or formerly owned or operated properties, regardless of whether such environmental conditions were created by the Company or a third-party. The Company has incurred, and continues to incur, costs to address soil and groundwater contamination at some locations. If such issues become more expensive to address, or if new issues arise, they could increase the Company’s expenses, generate negative publicity, or otherwise adversely affect the Company. +The disruption, expense and potential liability associated with existing and future litigation against the Company could adversely affect its reputation, financial position or results of operations. +The Company may be named as a defendant lawsuits and regulatory actions. For example, regulatory actions, punitive class actions lawsuits and individual lawsuits have been filed against the Company alleging claims relating to property damage, remediation and human health effects, among other claims, arising from the Company’s operations, including its handling, storage, treatment, transportation and/or disposal of waste. These claims are discussed in more detail in Note 17 to the Company's Consolidated Financial Statements. Due to the inherent uncertainties of litigation and regulatory proceedings, the Company cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on the Company’s business, results of operations and financial position. In addition, the Company may have to devote substantial resources and executive time to the defense of such proceedings. +Provisions of Delaware law and the Company’s certificate of incorporation and bylaws could prevent or delay a change in control or change in management that could be beneficial to the Company’s stockholders. +Provisions of the Delaware General Corporation Law and the Company’s certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change in control of the Company that might benefit the Company's stockholders. These provisions are intended to provide the Company’s Board of Directors with continuity and to encourage negotiations between the Company’s Board and any potential acquirer. Such provisions include a classified Board of Directors under which one-third of the directors stand for election each year. These provisions could also discourage proxy contests and make it more difficult for stockholders to replace the majority of the Company's directors and take other corporate actions that may be beneficial to the Company’s stockholders. +19 +Item 1B. Unresolved Staff Comments +None. +Item 1C. Cybersecurity +The Company maintains a cybersecurity program guided by the ISO 27001 information security standard for information security management systems that is reasonably designed to protect its information, and that of its customers, against cybersecurity threats that may result in material adverse effects on the confidentiality, integrity, and availability of its information systems. +Internal Cybersecurity Team and Governance +Board of Directors +The Company’s Board, in coordination with the Audit Committee, oversees the Company’s enterprise risk management process, including the management of risks arising from cybersecurity threats. The Board has delegated the primary responsibility to oversee cybersecurity matters to the Audit Committee . The Audit Committee regularly reviews the measures implemented by the Company to identify and mitigate data protection and cybersecurity risks. As part of such reviews, the Audit Committee receives quarterly reports and presentations from members of the Company’s team responsible for overseeing the Company’s cybersecurity risk management, including the Chief Information Security Officer (CISO) , Chief Information Officer (CIO), and members of the legal team, which address a wide range of topics including recent developments, evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, technological trends and information security considerations arising with respect to the Company’s peers and third parties. The other members of the Board attend these quarterly reports and presentations to the Audit Committee by members of management. The Company has protocols by which certain cybersecurity incidents that meet established reporting thresholds are escalated to management and, where appropriate, reported promptly to the Board and Audit Committee, as well as ongoing updates regarding any such incident until it has been addressed. +Management +At the management level, the CISO, who has extensive cybersecurity knowledge and skills gained from over 16 years of work experience at the Company and elsewhere , heads the cross-functional team responsible for implementing, monitoring, and maintaining cybersecurity and data protection practices across the business and reports directly to the CIO, who reports directly to the Chief Executive Officer. The CISO receives reports on cybersecurity threats from a number of experienced information security team members, each of whom is responsible for various parts of the business on an ongoing basis and, in conjunction with management, regularly reviews risk management measures implemented by the Company to identify and mitigate data protection and cybersecurity risks. The CISO collaborates closely with the legal team to oversee compliance with legal, regulatory and contractual security requirements. +Internal Cybersecurity Team +The Internal Cybersecurity Team, led by the CISO, is responsible for the implementation, monitoring, and maintenance of the cybersecurity and data protection practices across the Company. The CISO is supported by experienced information security team members, each of whom is supported by a team of trained cybersecurity professionals. The individuals who report directly to the CISO include the Director of Cyber Security, who oversees the cybersecurity engineers, security operations center, and identity & access management team, and the Privacy and Compliance Manager, who oversees the global privacy and compliance analysts. +In addition to internal cybersecurity capabilities, the Company also at times engages consultants or specialists to assist with assessing, identifying, and managing cybersecurity risks. +Risk Management and Strategy +The Company employs systems and processes designed to oversee, identify, and reduce the potential impact of a security incident at a third-party vendor, service provider or customer or otherwise implicating the third-party technology and systems the Company uses. +The Company maintains a Privacy Policy that describes the personal information that it collects about its customers, including how the Company may use such information and when it shares such information with third parties. +The Company conducts annual cyber-risk mitigation exercises including awareness outreach, annual IT Security Awareness training, periodic phishing simulations, and a variety of ongoing vulnerability scans. Over the past two years, the Company has +20 +implemented multiple new security tools designed to provide visibility and controls allowing the cybersecurity team to safeguard data against theft or loss. +The Company maintains various role-based access controls to safeguard data and systems. Data center assets are protected and monitored by badged key systems and video surveillance. Access is periodically reviewed and updated. +The Company measures its security posture through several third-party score-based cybersecurity tools. Scores from these tools are reviewed weekly and measure the Company's posture regarding securing applications, infrastructure, data and other assets from theft or loss, both internally and externally. Thresholds are in place for escalation to management. +The Company maintains cybersecurity insurance coverage to help defray any financial losses suffered by the Company in the event of an information security breach. The Company's insurance coverage may not cover all cybersecurity incidents the Company experiences or all losses the Company incurs as a result. +Incident Response +The Company has adopted an Incident Response Plan (the “IRP”) that provides a standardized framework for responding to security incidents. The IRP sets out a coordinated approach to investigating, containing, documenting and mitigating incidents, including reporting findings and keeping senior management and other key stakeholders informed and involved as appropriate. The IRP applies to all Company personnel (including third-party contractors, vendors and partners) that perform functions or services that require access to secure Company information, and to all devices and network services that are owned or managed by the Company. +Material Cybersecurity Risks, Threats & Incidents +The Company relies on information technology and third-party vendors to support its operations, including its secure processing of personal, confidential, sensitive, proprietary and other types of information. The Company and its vendors may not be able to protect all of their respective information systems, and such incidents may lead to reputational harm, revenue and client loss, legal actions, statutory penalties, among other consequences. Risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected the Company, including its business strategy, results of operations or financial condition. While the Company has not experienced any material cybersecurity incidents, there can be no guarantee that it will not be the subject of future successful attacks, threats or incidents. +Item 2. Properties +The Company operates its domestic administration, sales and marketing operations primarily from an owned facility of approximately 307,000 square feet in Rockford, Michigan; a leased facility of approximately 117,000 square feet in Rockford, Michigan; a leased facility of approximately 11,000 square feet in Boston, Massachusetts and a leased facility of approximately 32,000 square feet in the United Kingdom. The Company operates its distribution operations primarily through a leased distribution facility of approximately 720,000 square feet in Beaumont, California; a leased distribution center of approximately 468,000 square feet in Howard City, Michigan; a leased distribution center of approximately 215,000 square feet in Ontario, Canada and a leased distribution center of approximately 125,000 square feet in Heerhugowaard, Netherlands. +The Company also leases offices, showrooms and other facilities throughout the U.S., Canada, the United Kingdom, continental Europe, Hong Kong and China to meet its operational requirements. In addition, the Company operates 119 retail stores primarily through leases with various third-party landlords in the U.S., United Kingdom, and Italy that collectively occupy approximately 260,000 square feet. The Company believes that its current facilities are suitable and adequate to meet its current needs. +Item 3. Legal Proceedings +The Company is involved in litigation and various legal matters arising in the normal course of business, including certain environmental compliance activities. For a discussion of legal matters, see Note 17 to the Company's Consolidated Financial Statements. +Item 4. Mine Safety Disclosures +Not applicable. +Supplemental Item. Information about our Executive Officers +The following table lists the names and ages of the Executive Officers of the Company and their positions held with the Company as of January 31, 2025. The information provided below the table lists the business experience of each such +21 +Executive Officer for at least the past five years. All Executive Officers serve at the pleasure of the Board of Directors of the Company, or, if not appointed by the Board of Directors, at the pleasure of management. +Name Age Positions held with the Company +Christopher E. Hufnagel 52 President and Chief Executive Officer +Amy M. Klimek 51 Chief Human Resources Officer +Susan J. Kuhn 49 President Active Group +David A. Latchana 47 Chief Legal Officer and Corporate Secretary +Taryn L. Miller 52 Chief Financial Officer and Treasurer +Isabel Soriano 54 President, International +Christopher E. Hufnagel has served the Company as Chief Executive Officer since August 2023, and as President since May 2023. From November 2022 through May 2023, he was the President, Active Group. From September 2019 through November 2022 he served as President of the Merrell ® brand. From July 2018 through September 2019, he served as President, Cat ® Footwear. From January 2013 through July 2018, he served as Senior Vice President and Head of Corporate Strategy. +Amy M. Klimek has served the Company as Chief Human Resources Officer since January 2024, and Executive Vice President, Global Human Resources since May 2016. From October 2014 to May 2016, she served as Vice President of Human Resources. +Susan J. Kuhn has served the Company as President, Active Group since October 2024. From January 2020 through April 2023, she was the President and General Manager for Europe, Middle East and Africa for Foot Locker BV, a subsidiary of Foot Locker, Inc., a footwear and apparel retailer. +David A. Latchana has served the Company as Chief Legal Officer and Secretary since April 2024, and served as Vice President, Interim General Counsel and Secretary from January 2024 through April 2024. From September 2021 through January 2024, he served as Vice President, Executive Compensation, Benefits and Communications. From February 2015 to September 2021 he served as Associate General Counsel and Assistant Secretary. +Taryn Miller has served the Company as Chief Financial Officer and Treasurer since May 2024. From October 2022 through October 2023, she was the Vice President, Corporate and Commercial Finance for Corteva Inc., a publicly traded agricultural chemical and seed company. From April 2017 through October 2022, she was the Chief Financial Officer, Global Business Units, Enterprise FP&A and Investor Relations for Kimberly-Clark Corporation, a publicly traded consumer goods and personal care company. +Isabel Soriano has served the Company as President, International since June 2021. From June 2018 to May 2021, she served as Vice President and Managing Director of EMEA. From April 2014 to June 2018, she served as Vice President and General Manager for Vans, Timberland and Kipling in South America at VF Corporation, a publicly traded footwear and apparel retailer. +PART II +Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +The Company’s common stock is traded on the New York Stock Exchange under the symbol “WWW.” The number of stockholders of record on February 7, 2025, was 629. +A quarterly dividend of $0.10 per share was declared on February 5, 2025. The Company currently expects that comparable cash dividends will be paid in future quarters in fiscal 2025. +Stock Performance Graph +The following graph compares the five-year cumulative total stockholder return on the Company’s common stock to the S&P Composite 1500 Index and the S&P Composite1500 Consumer Durables & Apparel Index, assuming an investment of $100 at the beginning of the period indicated and reinvestment of dividends. The Company is part of both the S&P 1500 Index and the S&P 1500 Consumer Durables & Apparel Index. This Stock Performance Graph shall not be deemed to be incorporated by reference into the Company’s SEC filings and shall not constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. +22 +Five-Year Cumulative Total Return Summary +The following table provides information regarding the Company’s purchases of its own common stock during the fourth quarter of fiscal 2024. +Issuer Purchases of Equity Securities +Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount that May Yet Be Purchased Under the Plans or Programs +Period 10 (September 29, 2024 to November 2, 2024) +Common Stock Repurchase Program (1) +— $ — — $ 150,000,000 +Employee Transactions (2) +37,162 $ 15.69 +Period 11 (November 3, 2024 to November 30, 2024) +Common Stock Repurchase Program (1) +— $ — — $ 150,000,000 +Employee Transactions (2) +5,252 $ 23.40 +Period 12 (December 1, 2024 to December 28, 2024) +Common Stock Repurchase Program (1) +— $ — — $ 150,000,000 +Employee Transactions (2) +— $ — +Total for the Fourth Quarter Ended December 28, 2024 +Common Stock Repurchase Program (1) +— $ — — $ 150,000,000 +Employee Transactions (2) +42,414 $ 16.65 +(1) On March 7, 2024, the Company’s Board of Directors approved a common stock repurchase program that authorized the repurchase of $150.0 million of common stock over a three-year period. Since that date, the Company has not repurchased any common stock. +(2) Employee transactions include: (1) shares delivered or attested to in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) restricted shares and units withheld to offset statutory minimum tax withholding that occurs upon vesting of restricted shares and units. The Company’s employee stock compensation plans provide that the shares delivered or attested to, or withheld, shall be valued at the closing price of the Company’s common stock on the date the relevant transaction occurs. +23 +Item 6. Reserved +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations +OVERVIEW +BUSINESS OVERVIEW +The Company is a leading global designer, marketer and licensor of branded footwear, apparel and accessories. The Company’s strategic vision is to build and grow high-energy footwear, apparel and accessories brands that inspire and empower consumers to explore and enjoy their active lives. The Company seeks to fulfill this vision by offering innovative products and compelling brand propositions; complementing its footwear brands with strong apparel and accessories offerings; expanding its global direct-to-consumer footprint; and delivering supply chain excellence. +The Company’s brands are marketed in approximately 170 countries and territories at December 28, 2024, including through owned operations in the U.S., Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. At December 28, 2024, the Company oper ated 119 retail stores in the U.S., United Kingdom, and Italy an d 39 direct-to-consumer eCommerce sites. +Effective May 4, 2024, the Company entered into global multi-year licensing agreements of Merrell ® and Saucony ® kids footwear and Merrell ® apparel and accessories. +Effective January 10, 2024, the Company completed the sale of the Sperry ® business. +Effective January 1, 2024, the Company completed the sale of the Company’s equity interests in the Merrell ® and Saucony ® China joint venture entities. +Effective August 23, 2023, the Company completed the sale of the U.S. Leathers business and effective December 28, 2023, the Company completed the sale of the Asia-based Leathers business. +In the third quarter of fiscal 2023, the Company entered into a multi-year licensing agreement of the Hush Puppies ® brand in the United States and Canada. In addition, the Company completed the sale of the Hush Puppies ® trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau. The Company continues to own the Hush Puppies ® brand throughout the rest of the world. +Effective February 4, 2023, the Company completed the sale of the Keds ® business. +The following discussion includes a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2024 and 2023. A discussion of a comparison of the Company's results of operations and liquidity and capital resources for fiscal 2023 and 2022 has been omitted from this Form 10-K but may be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023, filed with the SEC on February 22, 2024. +2024 FINANCIAL OVERVIEW +• Revenue was $1,755.0 million for 2024, representing a decrease of 21.8% compared to the prior year's revenue of $2,242.9 million. +• Gross margin for 2024 was 44.5%, compared to 38.9% in 2023. +• The effective tax rate in 2024 was 16.3%, compared to 70.7% in 2023. +• Diluted earnings per share in 2024 was $0.58, compared to diluted loss per share of $0.51 in 2023. +• The Company declared cash dividends of $0.40 per share in 2024 and 2023. +• Cash flow provided by operating activities was $180.1 million in 2024 and $121.8 million in 2023. +• Compared to the prior year, inventory decreased $133.0 million, or 35.6%, as of year-end. +24 +RESULTS OF OPERATIONS +The following is a discussion of the Company’s results of operations and liquidity and capital resources. This section should be read in conjunction with the Company’s consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K. +Fiscal Year +(In millions, except per share data) 2024 2023 Percent Change +Revenue +$ 1,755.0 $ 2,242.9 (21.8) % +Cost of goods sold +973.5 1,370.4 (29.0) % +Gross profit +781.5 872.5 (10.4) % +Selling, general and administrative expenses +690.0 856.2 (19.4) % +Gain on sale of businesses, trademarks and long-lived assets (8.5) (90.4) (90.6) % +Impairment of long-lived assets 9.3 185.3 (95.0) % +Environmental and other related costs (income), net of recoveries (10.3) (10.4) (1.0) % +Operating profit (loss) 101.0 (68.2) 248.1 % +Interest expense, net +42.7 63.5 (32.8) % +Other expense (income), net (3.3) 2.5 (232.0) % +Earnings (loss) before income taxes 61.6 (134.2) 145.9 % +Income tax expense (benefit) 10.1 (95.0) 110.6 % +Net earnings (loss) 51.5 (39.2) 231.4 % +Less: net earnings (loss) attributable to noncontrolling interests 3.6 0.4 800.0 % +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ 47.9 $ (39.6) 221.0 % +Diluted earnings (loss) per share $ 0.58 $ (0.51) 213.7 % +REVENUE +Revenue was $1,755.0 million for 2024, representing a decrease of 21.8% compared to the prior year's revenue of $2,242.9 million. The change in revenue reflected a $193.0 million, or 13.4%, decrease from the Active Group, a $25.3 million, or 5.3%, decrease from the Work Group and a $269.6 million, or 83.4%, decrease from Other. The Active Group's revenue decrease was driven by a decrease of $89.3 million from Saucony ® , $77.4 million from Merrell ® , $21.4 million from Chaco ® , and $4.9 million from Sweaty Betty ® . The Work Group’s revenue decrease was driven primarily by a decrease of $9.0 million from Cat ® , $8.1 million from Wolverine ® , $3.3 million from Bates ® , $2.6 million from Harley-Davidson ® and $2.3 million from HYTEST ® . The decrease in Other revenue was primarily driven by a decrease in revenue from businesses that were sold in 2023 and 2024 and the licensing of the Hush Puppies ® business in 2023, which includes decreases of $191.9 million from Sperry ® , $37.0 million from the performance leathers business, $25.7 million from Hush Puppies ® and $6.5 million from Keds ® . International revenue represented 49.1%, and 45.7% of total reported revenues in 2024 and 2023, respectively. Changes in foreign exchange rates increased revenue by $2.8 million during 2024. Direct-to-consumer revenue decreased by $98.5 million, or 16.9% during 2024 compared to 2023. +GROSS MARGIN +For 2024, the Company’s gross margin was 44.5%, compared to 38.9% in 2023. The gross margin increase was primarily driven by less end-of-life inventory sales, lower supply chain costs and lower product costs. +OPERATING EXPENSES +Operating expenses decreased $260.2 million in 2024, to $680.5 million. The decrease was primarily driven by lower impairment of long-lived assets ($176.3 million), lower general and administrative costs ($48.8 million), lower selling costs ($45.2 million), lower advertising costs ($28.9 million), lower distribution costs ($25.5 million), lower reorganization costs ($18.0 million), and lower product development costs ($7.8 million), partially offset by lower gains on the sale of businesses, trademarks, and long-lived assets ($81.8 million), higher incentive compensation costs ($12.9 million) and lower environmental and other related costs, net of recoveries ($0.1 million). Environmental and other related costs were $15.6 million and $8.4 million in 2024 and 2023, respectively. See Note 17 to the Company's Consolidated Financial Statements for further discussion of environmental remediation costs. +25 +INTEREST, OTHER AND TAXES +Net interest expense was $42.7 million in 2024 compared to $63.5 million in 2023. Interest expense decreased in the current year due to lower average principal balances of variable rate debt and lower weighted average interest rates on variable rate debt. +Other income was $3.3 million in 2024 compared to other expense of $2.5 million in 2023. +The effective tax rate in 2024 was 16.3%, compared to 70.7% in 2023. In 2023 the Company recognized more tax benefits compared to 2024 primarily related to the generation and utilization of a capital loss. +REPORTABLE SEGMENTS +The Company’s portfolio of brands is organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; and +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of Hush Puppies ® footwear, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores, the Stride Rite ® licensed business, Sperry ® footwear, Keds ® footwear, and apparel and the Company’s leather marketing operations,. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segment results for years 2024 and 2023 are as follows: +Fiscal Year +(In millions) 2024 2023 Change Percent Change +REVENUE +Active Group $ 1,246.1 $ 1,439.1 $ (193.0) (13.4) % +Work Group 455.3 480.6 (25.3) (5.3) % +Other +53.6 323.2 (269.6) (83.4) % +Total +$ 1,755.0 $ 2,242.9 $ (487.9) (21.8) % +OPERATING PROFIT (LOSS) +Active Group $ 184.9 $ 140.3 $ 44.6 31.8 % +Work Group 69.2 58.1 11.1 19.1 % +Other +31.3 32.8 (1.5) (4.6) % +Corporate +(184.4) (299.4) 115.0 38.4 % +Total +$ 101.0 $ (68.2) $ 169.2 248.1 % +Further information regarding the reportable segments can be found in Note 18 to the Company's Consolidated Financial Statements. +Active Group +The Active Group’s revenue decreased $193.0 million, or 13.4%, in 2024 compared to 2023. The revenue decrease was driven by a decrease of $89.3 million from Saucony ® , $77.4 million from Merrell ® , $21.4 million from Chaco ® and $4.9 million from Sweaty Betty ® . The Saucony ® decrease was primarily due to lower end of life inventory sales compared to the prior year, the divestiture of the Company's equity interest in the China joint venture entity, effective January 1, 2024, and lower Saucony ® kids revenue resulting from licensing the brand in the United States and Canada starting in the second quarter of 2024. The Merrell ® decrease was primarily due to lower end of life inventory sales compared to the prior year, softer consumer demand in the U.S. wholesale and International channels and lower Merrell ® kids revenue resulting from licensing the brand in the United States and Canada starting in the second quarter of 2024, partially offset by growth from new products, including Moab Speed and Speed Strike, and growth in core brand franchises, including Moab 3 and Jungle Moc. The Chaco ® decrease was primarily due to lower closeout and end of life inventory sales compared to the prior year and softer consumer demand. The Sweaty +26 +Betty ® decrease was primarily due to softer consumer demand in direct-to-consumer and wholesale sales channels across the U.S. and China markets and lower end of life inventory sales compared to the prior year. +The Active Group’s operating profit increased $44.6 million, or 31.8%, in 2024 compared to 2023. The operating profit increase was due to a 520 basis point increase in gross margin and a $58.9 million decrease in selling, general and administrative costs partially offset by revenue decreases. The increase in gross margin in the current year period was primarily due to decreased closeout sales, lower product costs, and lower supply chain costs. The decrease in selling, general and administrative expenses in 2024 is primarily due to lower advertising costs, selling expenses, distribution costs, and employee costs. +Work Group +The Work Group’s revenue decreased $25.3 million, or 5.3%, in 2024 compared to 2023. The revenue decrease was primarily driven by a decrease of $9.0 million from Cat ® , $8.1 million from Wolverine ® , $3.3 million from Bates ® , $2.6 million from Harley-Davidson ® and $2.3 million from HYTEST ® . The Cat ® decrease was primarily due to timing of shipments in the U.S. and international channels, lower closeout sales versus the prior year and softer consumer demand in direct-to-consumer channels, partially offset by growth in the U.S. wholesale channel. The Wolverine ® decrease was primarily due to lower closeout sales compared to the prior year. The Bates ® decrease was primarily due to softer consumer demand in the U.S. direct-to-consumer channels, high inventory levels at certain retail customers and lower closeout sales versus the prior year. The Harley-Davidson ® decrease was primarily due to declines in top dealer accounts. The HYTEST ® decrease was primarily due to lower closeout sales compared to the prior year, partially offset by growth in the U.S. wholesale channel. +The Work Group’s operating profit increased $11.1 million, or 19.1%, in 2024 compared to 2023. The operating profit increase was due to a 180 basis point increase in gross margin and an $11.1 million decrease in selling, general and administrative costs partially offset by revenue decreases. The increase in gross margin in the current year was due to decreased closeout sales, lower product cost and favorable average selling price. The decrease in selling, general and administrative expenses in 2024 was primarily due to lower advertising costs, selling expenses, and employee costs. +Other +Other revenue decreased $269.6 million, or 83.4%, in 2024 compared to 2023. The revenue decline was primarily driven by a decrease of $191.9 million from Sperry ® , $37.0 million from the performance leathers business, $25.7 million from Hush Puppies ® and $6.5 million from Keds ® . The Sperry ® decrease is due to the divestiture of the business effective January 10, 2024. The performance leathers business decrease is due to the divestiture of the U.S. leathers business, effective August 23, 2023 and the Asia-based leathers business, effective December 28, 2023. The Hush Puppies ® decrease is due to the licensing of the brand in the United States and Canada starting in the third quarter of 2023. The Keds ® decrease is due to the divestiture of the business, effective February 4, 2023. +Other operating profit decreased $1.5 million, or 4.6%, in 2024 compared to 2023. The operating profit decrease was due to revenue decreases partially offset by a $90.0 million decrease in selling, general and administrative costs. The decrease in selling, general and administrative expenses in the current year period was primarily due to the divestiture of the Sperry ® business, performance leathers business, and Keds ® business, along with the licensing of the Hush Puppies ® business. +Corporate +Corporate expenses decreased $115.0 million in 2024 compared to 2023 primarily due to lower impairment of long-lived and intangible assets ($176.3 million), lower reorganization activities ($18.0 million) and lower employee costs ($5.3 million), partially offset by lower gains on sale of businesses, trademarks, and long-lived assets ($81.5 million), higher incentive compensation costs ($11.6 million) and higher environmental and other related costs ($0.1 million). +LIQUIDITY AND CAPITAL RESOURCES +Fiscal Year +(In millions) 2024 2023 +Cash and cash equivalents (1) +$ 152.1 $ 184.6 +Debt 648.0 920.8 +Available Revolving Facility (2) +724.0 688.4 +(1) Cash and cash equivalents at the end of the year in the Consolidated Statements of Cash Flows includes $5.6 million of cash and cash equivalents that are classified as held for sale as of December 30, 2023 that are not included in cash and cash equivalents in the Consolidated Balance Sheets. +27 +(2) Amounts are net of both borrowings, if any, and outstanding standby letters of credit issued in accordance with the terms of the Revolving Facility. +Liquidity +Cash and cash equivalents of $152.1 million as of December 28, 2024 were $32.5 million lower compared to December 30, 2023. The decrease is due primarily to net revolver payments of $235.0 million, long-term debt payments of $39.2 million, cash dividends paid of $32.5 million, additions to property, plant, and equipment of $20.2 million and shares acquired related to employee stock plans of $2.6 million, partially offset by cash provided by operating activities of $180.1 million, proceeds from the sale of businesses, trademarks, long-lived assets and other assets of $102.4 million, proceeds from company-owned life insurance policy liquidations of $7.9 million and proceeds from company-owned life insurance policies of $7.0 million. The Company had $724.0 million of borrowing capacity available under the Revolving Facility as of December 28, 2024. Cash and cash equivalents located in foreign jurisdictions totaled $134.1 million as of December 28, 2024. +Cash flow from operating activities is expected to be sufficient to meet the Company’s working capital needs for the foreseeable future. Any excess cash flow from operating activities is expected to be used to fund organic growth initiatives, reduce debt, pay dividends and for general corporate purposes. +The Company did not repurchase shares of its common stock during 2024 and 2023. +A detailed discussion of environmental remediation costs is found in Note 17 to the Company's Consolidated Financial Statements. The Company has established a reserve for estimated environmental remediation costs based upon an evaluation of currently available facts with respect to each individual affected site. As of December 28, 2024, the Company has a reserve of $39.7 million, of which $19.4 million is expected to be paid in the next 12 months and is recorded as a current obligation in other accrued liabilities, with the remaining $20.3 million recorded in other liabilities and expected to be paid over the course of up to 25 years. The Company's remediation activity at its former Tannery site and sites where the Company disposed of Tannery byproducts is ongoing. It is difficult to estimate the cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. +Note 17 to the Company's Consolidated Financial Statements also includes a detailed discussion of environmental litigation matters. As of December 28, 2024, the Company had recorded liabilities of $10.1 million for certain of these environmental litigation matters which are recorded as other accrued liabilities in the consolidated balance sheets. +Developments may occur that could materially change the Company’s current cost estimates. The Company adjusts recorded liabilities as further information develops or circumstances change. +The Company expects to meet its contractual obligations through its customary sources of liquidity in the normal course of business, such as cash from operating activities, and believes it has the financial resources to satisfy these contractual obligations. The Company had the following contractual obligations due by period at December 28, 2024: +(In millions) Total Less than +1 year 1-3 years 3-5 years More than +5 years +Long-term debt obligations (1) +$ 768.4 $ 111.8 $ 69.8 $ 586.8 $ — +Operating lease obligations +178.5 34.0 51.0 38.6 54.9 +Purchase obligations (2) +322.5 322.5 — — — +Supplemental Executive Retirement Plan +45.4 4.1 9.1 9.1 23.1 +Municipal water improvements (3) +13.4 5.2 8.2 — — +Tax Cuts and Jobs Act transition obligation 11.7 11.7 — — — +Total (4) +$ 1,339.9 $ 489.3 $ 138.1 $ 634.5 $ 78.0 +(1) Includes principal and interest payments on the Company’s long-term debt. Estimated future interest payments on outstanding debt obligations are based on interest rates as of December 28, 2024. Actual cash outflows may differ significantly due to changes in underlying interest rates. +(2) Purchase obligations related primarily to inventory and capital expenditure commitments. +(3) Under the terms of a Consent Decree resolving certain civil and regulatory actions, the Company is obligated to contribute towards the costs of extending municipal water lines, developing a replacement wellfield and making certain improvements to Plainfield Township’s existing water treatment plant, all subject to an aggregate cap of $69.5 million. During 2024 and 2023, the Company made payments of $12.2 million and $6.4 million towards the total cap, respectively. Due to the +28 +uncertainty of the timing and amounts related to the Company's other environmental remediation costs, they have been excluded from this table. See Note 17 to the Company's Consolidated Financial Statements for additional information. +(4) The total amount of unrecognized tax benefits on the consolidated balance sheet at December 28, 2024 is $1.6 million. At this time, the Company is unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes. As a result, this amount is not included in the table above. +Financing Arrangements +The Company’s credit agreement provides for a term loan A facility (the “Term Facility”) and for a revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”). The maturity date of the loans under the Senior Credit Facilities is October 21, 2026. The credit agreement provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. The Revolving Facility allows the Company to borrow up to an aggregate amount of $800.0 million. +The Company’s $550.0 million 4.0% senior notes issued on August 26, 2021 are due on August 15, 2029. Related interest payments are due semi-annually. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +As of December 28, 2024, the Company was in compliance with all covenants and performance ratios under the Credit Agreement. +The Company’s debt at December 28, 2024 totaled $648.0 million, compared to $920.8 million at December 30, 2023. The Company expects to use the current borrowings to fund organic growth initiatives, pay dividends and for general corporate purposes. The decreased debt position is due to lower borrowings under the Revolving Facility resulting from operating cash inflows and proceeds from divestitures. +Cash Flows +The following table summarizes cash flow activities: +Fiscal Year Ended +(In millions) December 28, +2024 December 30, +2023 +Net cash provided by operating activities 180.1 121.8 +Net cash provided by investing activities 86.8 171.6 +Net cash used by financing activities (299.2) (246.3) +Additions to property, plant and equipment (20.2) (14.6) +Depreciation and amortization 26.2 35.1 +Operating Activities +The principal source of the Company’s operating cash flow is net earnings, including cash receipts from the sale of the Company’s products, net of costs of goods sold. +Cash from operations during 2024 was higher compared to 2023, due primarily to a decrease in net working capital representing a source of cash of $82.6 million. Working capital balances were favorably impacted by a decrease in inventories of $127.1 million and a decrease in accounts receivable of $16.7 million, partially offset by a decrease in other operating liabilities of $47.9 million, an increase in other operating assets of $5.6 million, a decrease in income taxes payable of $4.3 million, and a decrease in accounts payable of $3.4 million. Operating cash flows included non-cash add back for depreciation and amortization expense adjustment of $26.2 million, deferred income tax adjustment of $21.4 million, stock-based compensation expense adjustment of $19.1 million, environmental and other related costs, net of cash payments and recoveries received cash outflow of $13.3 million, the impairment of long-lived assets of $9.3 million, gain on sale of business, trademarks and long-lived assets of $8.5 million, and pension expense adjustment of $0.2 million. +Investing Activities +The Company made capital expenditures of $20.2 million and $14.6 million in years 2024 and 2023, respectively, for building improvements, eCommerce site enhancements, new retail stores, distribution operations improvements and information system +29 +enhancements. The current year activity includes proceeds from the sale of businesses and trademarks of $102.4 million and company-owned life insurance policy liquidations of $7.9 million. +Financing Activities +The current year debt activity includes net payments under the Revolving Facility of $235.0 million, payments on long-term debt of $39.2 million and proceeds from company-owned life insurance policies of $7.0 million. The Company paid $2.6 million and $5.8 million in 2024 and 2023, respectively, in connection with shares or units withheld to pay employee taxes related to awards under stock incentive plans. The Company received $31.2 million from noncontrolling interests in 2023. +The Company declared cash dividends of $0.40 per share in each of 2024 and 2023 . Dividends paid totaled $32.5 million and $32.6 million for 2024 and 2023 , respectively. A quarterly dividend of $0.10 per share was declared on February 5, 2025 to shareholders of record on April 1, 2025. +NEW ACCOUNTING STANDARDS +See Note 2 to the Company's Consolidated Financial Statements for information related to new accounting standards. +CRITICAL ACCOUNTING POLICIES AND ESTIMATES +The preparation of the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates these estimates. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company’s estimates. However, actual results may differ materially from these estimates under different assumptions or conditions. +The Company has identified the following critical accounting policies used in determining estimates and assumptions in the amounts reported. Management believes that an understanding of these policies is important to an overall understanding of the Company’s Consolidated Financial Statements. Significant accounting policies are summarized in Note 1 to the Company's Consolidated Financial Statements. +Revenue Recognition and Performance Obligations +Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations, and recognizes revenue upon completion of the performance obligation. Revenue is recognized net of variable consideration and any taxes collected from customers, which are subsequently remitted to governmental authorities. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consists of wholesale revenue and direct-to-consumer revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products to the customer. Direct-to-consumer includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue recognized at time of sale. The point of purchase or shipment was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the direct-to-consumer channel. +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during the year ended December 28, 2024 related to the Company’s contract liabilities was nominal. +30 +Inventory +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the last-in, first out ("LIFO") method for certain domestic finished product inventories. Cost is determined using the first-in, first-out (“FIFO”) method for all raw materials, work-in-process and finished product inventories in foreign countries and certain domestic finished product inventories. The average cost of inventory is used for finished product inventories of the Company’s U.S. retail store business inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Business Combinations +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" section below. +Goodwill and Indefinite-Lived Intangible Assets +Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. If the carrying amounts of these assets are not recoverable based upon discounted cash flow and market approach analyses, the carrying amounts of such assets are reduced by the estimated difference between the carrying values and estimated fair values. The Company includes assumptions such as a discount rate and expected future operating performance, which includes forecasted revenue growth, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin and cost of capital, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value. +For goodwill, if the estimated fair value of the reporting unit exceeds its carrying value, no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, the Company records an impairment charge equal to the excess of the recorded goodwill over the fair value of the goodwill. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible assets are less than their carrying value. The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. The Company did not recognize any impairment charges for goodwill during 2024 and 2023. In the fourth quarter of 2022, after completion of the annual impairment testing, the Company recorded +31 +a $48.4 million impairment charge for Sweaty Betty ® goodwill. The Company did not recognize any impairment charges for indefinite-lived intangible assets during 2024. In the third quarter of 2023, after completion of impairment testing, the Company recorded a $38.3 million impairment charge for the Sperry ® trade name. In the fourth quarter of 2022, the Company recognized impairment charges of $191.0 million for the Sperry ® trade name and $189.3 million for the Sweaty Betty ® trade name. Refer to Note 4, “Goodwill and Other Intangible Assets” for additional discussion of the Sweaty Betty ® goodwill impairment and the Sweaty Betty ® and Sperry ® trade name impairments. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. Refer to Note 17, “Litigation and Contingencies” for additional discussion on estimated environmental remediation costs. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters as described in Note 17 to the Company's Consolidated Financial Statements. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17 “Litigation and Contingencies”. +Retirement Benefits +The determination of the obligation and expense for retirement benefits depends upon the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. +The Company utilizes a bond matching calculation to determine the discount rate used to calculate its year-end pension liability and subsequent year pension expense. A hypothetical bond portfolio is created based on a presumed purchase of individual bonds to settle the plans' expected future benefit payments. The discount rate is the resulting yield of the hypothetical bond portfolio. The bonds selected are listed as high grade by at least two recognized ratings agency and are non-callable, currently purchasable and non-prepayable. The calculated discount rate was 5.75% at December 28, 2024, compared to 5.30% at December 30, 2023. Pension expense is also impacted by the expected long-term rate of return on plan assets, which the Company has determined to be 6.96% and 6.88% for fiscal 2024 and 2023, respectively. This rate is based on both actual historical rates of return experienced by the pension assets and the long-term rate of return of a composite portfolio of equity and fixed income securities that reflects the approximate diversification of the pension assets. +Income Taxes +The Company maintains certain strategic management and operational activities in overseas subsidiaries, and its foreign earnings are taxed at rates that have generally been lower than the U.S. federal statutory income tax rate. A significant amount of the Company’s earnings are generated by its Canadian, European and Asian subsidiaries and, to a lesser extent, in jurisdictions that are not subject to income tax. Income tax audits associated with the allocation of this income and other complex issues may require an extended period of time to resolve and may result in income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. The Company evaluates the probability a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in the Company’s assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. The carrying value of the Company’s deferred tax assets assumes that the Company will be able to generate sufficient taxable income in future years to utilize these deferred tax assets. If these assumptions change, the +32 +Company may be required to record valuation allowances against its gross deferred tax assets in future years, which would cause the Company to record additional income tax expense in its consolidated statements of operations. Management evaluates the potential that the Company will be able to realize its gross deferred tax assets and assesses the need for valuation allowances on a quarterly basis. +On a periodic basis, the Company estimates the full year effective tax rate and records a quarterly income tax provision in accordance with the projected full year rate. As the year progresses, that estimate is refined based upon actual events and the distribution of earnings in each tax jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the revised anticipated annual rate. +The Company intends to repatriate cash held in foreign jurisdictions and has recorded a deferred tax liability related to estimated state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries. +The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on that amount of foreign unremitted earnings. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +Item 7A. Quantitative and Qualitative Disclosures About Market Risk +In the normal course of business, the Company's financial position and results of operations are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and cash flows. The Company regularly assesses these risks and has established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures. +Foreign Exchange Risk +The Company faces market risk to the extent that changes in foreign currency exchange rates affect the Company’s foreign assets, liabilities and inventory purchase commitments. The Company manages these risks by attempting to denominate contractual and other foreign arrangements in U.S. dollars. The Company does not believe that there has been a material change in the nature of the Company’s primary market risk exposures, including the categories of market risk to which the Company is exposed and the particular markets that present the primary risk of loss to the Company. As of the date of this Annual Report on Form 10-K, the Company does not know of any material change in the near-term in the general nature of its primary market risk exposure. +Under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging , the Company is required to recognize all derivatives on the balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. +The Company conducts wholesale operations outside of the U.S. in Canada, continental Europe, the United Kingdom, Hong Kong, China and Mexico where the functional currencies are primarily the Canadian dollar, euro, British pound, Hong Kong dollar, Chinese renminbi and Mexican peso, respectively. The Company utilizes foreign currency forward exchange contracts to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business as well as to manage foreign currency translation exposure. At December 28, 2024 and December 30, 2023, the Company had outstanding forward currency exchange contracts to purchase primarily U.S. dollars in the amounts of $263.5 million and $269.0 million, respectively, with maturities ranging up to 531 and 531 days, respectively. +The Company also has sourcing locations in Asia, where financial statements reflect the U.S. dollar as the functional currency. However, operating costs are paid in the local currency. Revenue generated by the Company from third-party foreign licensees is calculated in the local currencies but paid in U.S. dollars. Accordingly, the Company’s reported results are subject to foreign currency exposure for this stream of revenue and expenses. Any associated foreign currency gains or losses on the settlement of local currency amounts are reflected within the Company's consolidated statement of operations and comprehensive income. +Assets and liabilities outside the U.S. are primarily located in the United Kingdom, Canada and the Netherlands. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term. At December 28, 2024, a stronger U.S. dollar compared to certain foreign currencies decreased the value of these +33 +investments in net assets by $16.5 million from their value at December 30, 2023. At December 30, 2023, a weaker U.S. dollar compared to certain foreign currencies increased the value of these investments in net assets by $16.8 million from their value at December 31, 2022. +Interest Rate Risk +The Company is exposed to interest rate changes primarily as a result of interest expense on the Incremental Term Loan borrowings and any borrowings under the Revolving Facility. The Company’s total variable-rate debt was $102.5 million at December 28, 2024 and the Company held a forward-dated interest rate swap agreement, denominated in U.S. dollars that will effectively convert $16.7 million of this amount to fixed-rate debt. The interest rate swap derivative instrument is held and used by the Company as a tool for managing interest rate risk. The counterparty to the swap instrument is a large financial institution that the Company believes is of high-quality creditworthiness. While the Company may be exposed to potential losses due to the credit risk of non-performance by this counterparty, such losses are not anticipated. The fair value of the interest rate swap was determined to be a net asset of $0.2 million as of December 28, 2024. As of December 28, 2024, the weighted-average interest rate on the Company’s variable-rate debt, net of the impact of the interest rate swap, was 5.84%. Based on the level of variable-rate debt outstanding as of that date, a 100 basis point increase in the weighted-average interest rate would have increased the Company’s annual pre-tax interest expense by approximately $0.9 million. The Company does not enter into contracts for speculative or trading purposes, nor is it a party to any leveraged derivative instruments. +34 +Item 8. Financial Statements and Supplementary Data +Table of Contents +Consolidated Financial Statements +Consolidated Statements of Operations +36 +Consolidated Statements of Comprehensive Income (Loss) +37 +Consolidated Balance Sheets +38 +Consolidated Statements of Cash Flows +39 +Consolidated Statements of Stockholders' Equity +41 +Note 1. Summary of Significant Accounting Policies +43 +Note 2. New Accounting Standards +48 +Note 3. Earnings Per Share +49 +Note 4. Goodwill and Other Intangible Assets +50 +Note 5. Accounts Receivable +51 +Note 6. Revenue From Contracts With Customers +51 +Note 7. Inventories +53 +Note 8. Debt +53 +Note 9. Property, Plant and Equipment +54 +Note 10. Leases +54 +Note 11. Derivative Financial Instruments +55 +Note 12. Stock-Based Compensation +56 +Note 13. Retirement Plans +58 +Note 14. Income Taxes +61 +Note 15. Accumulated Other Comprehensive Income (Loss) +63 +Note 16. Fair Value Measurements +64 +Note 17. Litigation and Contingencies +64 +Note 18. Business Segments +67 +Note 19. Variable Interest Entities and Related Party Transactions +69 +Note 20. Divestitures and Assets and Liabilities Held for Sale +70 +Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) +73 +35 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Operations +Fiscal Year +(In millions, except per share data) 2024 2023 2022 +Revenue $ 1,755.0 $ 2,242.9 $ 2,684.8 +Cost of goods sold 973.5 1,370.4 1,614.4 +Gross profit 781.5 872.5 1,070.4 +Selling, general and administrative expenses 690.0 856.2 906.4 +Gain on sale of businesses, trademarks and long-lived assets ( 8.5 ) ( 90.4 ) ( 90.0 ) +Impairment of long-lived assets 9.3 185.3 428.7 +Environmental and other related costs (income), net of recoveries ( 10.3 ) ( 10.4 ) 33.7 +Operating profit (loss) 101.0 ( 68.2 ) ( 208.4 ) +Other expenses: +Interest expense, net 42.7 63.5 47.3 +Other expense (income), net ( 3.3 ) 2.5 ( 2.8 ) +Total other expenses 39.4 66.0 44.5 +Earnings (loss) before income taxes 61.6 ( 134.2 ) ( 252.9 ) +Income tax expense (benefit) 10.1 ( 95.0 ) ( 63.8 ) +Net earnings (loss) 51.5 ( 39.2 ) ( 189.1 ) +Less: net earnings (loss) attributable to noncontrolling interests 3.6 0.4 ( 0.8 ) +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ 47.9 $ ( 39.6 ) $ ( 188.3 ) +Net earnings (loss) per share (see Note 3): +Basic $ 0.58 $ ( 0.51 ) $ ( 2.37 ) +Diluted $ 0.58 $ ( 0.51 ) $ ( 2.37 ) +See accompanying notes to consolidated financial statements. +36 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Comprehensive Income (Loss) +Fiscal Year +(In millions) 2024 2023 2022 +Net earnings (loss) $ 51.5 $ ( 39.2 ) $ ( 189.1 ) +Other comprehensive income (loss) net of tax: +Foreign currency translation adjustments ( 17.6 ) 17.3 ( 76.8 ) +Unrealized gain (loss) on derivative instruments: +Unrealized gain (loss) arising during the period, net of taxes of $ 4.4 , $( 1.4 ) and $ 7.9 +12.1 ( 4.8 ) 25.4 +Reclassification adjustments included in net earnings (loss), net of taxes of $( 1.2 ), $( 4.6 ) and $( 4.7 ) +( 3.7 ) ( 14.2 ) ( 14.6 ) +Pension adjustments: +Net actuarial gain (loss) arising during the period, net of taxes of $ 0.8 , $( 2.0 ) and $ 6.3 +3.2 ( 7.5 ) 22.6 +Amortization of prior actuarial losses, net of taxes of $( 0.3 ), $( 0.2 ) and $ 2.4 +( 1.4 ) ( 0.5 ) 8.9 +Curtailment gain, net of taxes of $ 0.3 +— 0.9 — +Settlement loss, net of taxes of $ 0.3 +0.7 — — +Other comprehensive loss ( 6.7 ) ( 8.8 ) ( 34.5 ) +Less: other comprehensive income (loss) attributable to noncontrolling interests ( 1.1 ) 0.5 ( 0.5 ) +Other comprehensive loss attributable to Wolverine World Wide, Inc. ( 5.6 ) ( 9.3 ) ( 34.0 ) +Comprehensive income (loss) 44.8 ( 48.0 ) ( 223.6 ) +Less: comprehensive income (loss) attributable to noncontrolling interests 2.5 0.9 ( 1.3 ) +Comprehensive income (loss) attributable to Wolverine World Wide, Inc. $ 42.3 $ ( 48.9 ) $ ( 222.3 ) +See accompanying notes to consolidated financial statements. +37 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Balance Sheets +(In millions, except share data) December 28, +2024 December 30, +2023 +ASSETS +Current assets: +Cash and cash equivalents $ 152.1 $ 179.0 +Accounts receivable, less allowances of $ 8.9 and $ 18.3 +209.4 230.8 +Finished products, net 237.8 371.6 +Raw materials and work-in-process, net 2.8 2.0 +Total inventories 240.6 373.6 +Prepaid expenses and other current assets 86.4 81.1 +Current assets held for sale — 160.6 +Total current assets 688.5 1,025.1 +Property, plant and equipment, net of accumulated depreciation of $ 232.3 and $ 255.2 +89.7 96.3 +Lease right-of-use assets +102.1 118.2 +Goodwill 424.6 427.1 +Indefinite-lived intangibles 173.0 174.1 +Amortizable intangibles, net 31.5 34.9 +Deferred income taxes 93.7 116.4 +Other assets 65.7 70.7 +Total assets $ 1,668.8 $ 2,062.8 +LIABILITIES AND STOCKHOLDERS’ EQUITY +Current liabilities: +Accounts payable $ 200.9 $ 206.0 +Accrued salaries and wages 35.1 37.1 +Other accrued liabilities 183.4 252.4 +Lease liabilities 33.7 34.7 +Current maturities of long-term debt 10.0 10.0 +Borrowings under revolving credit agreements 70.0 305.0 +Current liabilities held for sale — 24.2 +Total current liabilities 533.1 869.4 +Long-term debt, less current maturities +568.0 605.8 +Accrued pension liabilities +71.4 78.4 +Deferred income taxes +29.0 26.9 +Lease liabilities, noncurrent +116.0 132.4 +Other liabilities +34.8 49.9 +Stockholders’ equity +Common stock – par value $ 1 , authorized 320,000,000 shares; 113,721,605 , and 112,953,782 shares issued +113.7 113.0 +Additional paid-in capital 382.7 364.0 +Retained earnings 849.5 834.8 +Accumulated other comprehensive loss ( 147.8 ) ( 142.2 ) +Cost of shares in treasury; 33,392,585 , and 33,403,280 shares +( 890.8 ) ( 891.0 ) +Total Wolverine World Wide, Inc. stockholders’ equity 307.3 278.6 +Noncontrolling interest +9.2 21.4 +Total stockholders’ equity 316.5 300.0 +Total liabilities and stockholders’ equity $ 1,668.8 $ 2,062.8 +See accompanying notes to consolidated financial statements. +38 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows +Fiscal Year +(In millions) +2024 2023 2022 +OPERATING ACTIVITIES +Net earnings (loss) $ 51.5 $ ( 39.2 ) $ ( 189.1 ) +Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: +Depreciation and amortization +26.2 35.1 34.6 +Deferred income taxes +21.4 ( 95.8 ) ( 105.7 ) +Stock-based compensation expense +19.1 15.2 33.4 +Pension and SERP expense +0.2 0.7 9.3 +Impairment of long-lived assets 9.3 185.3 428.7 +Environmental and other related costs ( 13.3 ) ( 55.1 ) ( 23.0 ) +Gain on sale of businesses, trademarks and long-lived assets ( 8.5 ) ( 90.4 ) ( 90.0 ) +Other +( 8.4 ) ( 2.0 ) ( 2.7 ) +Changes in operating assets and liabilities: +Accounts receivable +16.7 2.8 84.5 +Inventories +127.1 286.5 ( 428.9 ) +Other operating assets +( 5.6 ) ( 16.8 ) ( 21.1 ) +Accounts payable +( 3.4 ) ( 65.6 ) 62.6 +Income taxes +( 4.3 ) ( 2.3 ) 2.4 +Other operating liabilities +( 47.9 ) ( 36.6 ) 26.1 +Net cash provided by (used in) operating activities 180.1 121.8 ( 178.9 ) +INVESTING ACTIVITIES +Additions to property, plant and equipment ( 20.2 ) ( 14.6 ) ( 36.5 ) +Investment in joint ventures +— — ( 2.8 ) +Proceeds from sale of businesses, intangible assets and other assets, net of cash disposed of 102.4 188.9 90.0 +Proceeds from company-owned life insurance policy liquidations 7.9 — — +Other +( 3.3 ) ( 2.7 ) 3.9 +Net cash provided by investing activities 86.8 171.6 54.6 +FINANCING ACTIVITIES +Payments under revolving credit agreements ( 619.0 ) ( 743.0 ) ( 740.0 ) +Borrowings under revolving credit agreements 384.0 623.0 940.0 +Proceeds from company-owned life insurance policies 7.0 — 30.5 +Payments on long-term debt +( 39.2 ) ( 118.3 ) ( 10.0 ) +Payments of debt issuance and debt extinguishment costs +— ( 0.9 ) — +Cash dividends paid +( 32.5 ) ( 32.6 ) ( 32.8 ) +Purchase of common stock for treasury +— — ( 81.3 ) +Employee taxes paid under stock-based compensation plans +( 2.6 ) ( 5.8 ) ( 7.7 ) +Proceeds from the exercise of stock options +3.1 0.1 1.4 +Contributions from noncontrolling interests +— 31.2 7.0 +Net cash provided by (used in) financing activities ( 299.2 ) ( 246.3 ) 107.1 +Effect of foreign exchange rate changes +( 0.2 ) 2.0 ( 9.0 ) +Increase (decrease) in cash and cash equivalents ( 32.5 ) 49.1 ( 26.2 ) +Cash and cash equivalents at beginning of the year +184.6 135.5 161.7 +Cash and cash equivalents at end of the year +$ 152.1 $ 184.6 $ 135.5 +See accompanying notes to consolidated financial statements. +39 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Cash Flows – continued +Fiscal Year +(In millions) +2024 2023 2022 +OTHER CASH FLOW INFORMATION +Interest paid +$ 44.1 $ 63.5 $ 43.0 +Net income taxes paid +20.0 27.0 44.3 +NON-CASH INVESTING AND FINANCING ACTIVITY +Additions to property, plant and equipment not yet paid 1.3 0.3 3.3 +See accompanying notes to consolidated financial statements. +Cash and cash equivalents as of December 30, 2023 in the Consolidated Statements of Cash Flows includes $ 5.6 million of cash and cash equivalents that are classified as held for sale that are not included in cash and cash equivalents in the Consolidated Balance Sheets. +40 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at January 1, 2022 $ 111.6 $ 298.9 $ 1,128.2 $ ( 98.9 ) $ ( 810.2 ) $ 14.8 $ 644.4 +Net loss ( 188.3 ) ( 0.8 ) ( 189.1 ) +Other comprehensive loss ( 34.0 ) ( 0.5 ) ( 34.5 ) +Shares issued, net of shares forfeited under stock incentive plans ( 495,502 shares) +0.5 ( 8.2 ) ( 7.7 ) +Shares issued for stock options exercised, net ( 74,482 shares) +0.1 1.3 1.4 +Stock-based compensation expense +33.4 33.4 +Cash dividends declared ($ 0.40 per share) +( 32.7 ) ( 32.7 ) +Issuance of treasury shares ( 5,973 shares) +— 0.2 0.2 +Purchase of common stock for treasury ( 3,815,164 shares) +( 81.3 ) ( 81.3 ) +Capital contribution from noncontrolling interests 7.0 7.0 +Other $ ( 2.1 ) $ ( 2.1 ) +Balance at December 31, 2022 $ 112.2 $ 325.4 $ 907.2 $ ( 132.9 ) $ ( 891.3 ) $ 18.4 $ 339.0 +Net earnings (loss) ( 39.6 ) 0.4 ( 39.2 ) +Other comprehensive income (loss) ( 9.3 ) 0.5 ( 8.8 ) +Shares issued, net of shares forfeited under stock incentive plans ( 745,662 shares) +0.8 ( 6.7 ) ( 5.9 ) +Shares issued for stock options exercised, net ( 6,042 shares) +— 0.1 0.1 +Stock-based compensation expense +15.2 15.2 +Cash dividends declared ($ 0.40 per share) +( 32.8 ) ( 32.8 ) +Issuance of treasury shares ( 9,924 shares) +( 0.1 ) 0.3 0.2 +Capital contribution from noncontrolling interests 30.1 2.1 32.2 +Balance at December 30, 2023 $ 113.0 $ 364.0 $ 834.8 $ ( 142.2 ) $ ( 891.0 ) $ 21.4 $ 300.0 +See accompanying notes to consolidated financial statements. +41 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Consolidated Statements of Stockholders' Equity – continued +Wolverine World Wide, Inc. Stockholders' Equity +(In millions, except share and per share data) Common Stock Additional Paid-In Capital Retained Earnings Accumulated +Other +Comprehensive +Loss Treasury Stock Non-controlling Interest Total +Balance at December 30, 2023 $ 113.0 $ 364.0 $ 834.8 $ ( 142.2 ) $ ( 891.0 ) $ 21.4 $ 300.0 +Net earnings 47.9 3.6 51.5 +Other comprehensive loss ( 5.6 ) ( 1.1 ) ( 6.7 ) +Shares issued, net of shares forfeited under stock incentive plans ( 579,868 shares) +0.5 ( 3.1 ) ( 2.6 ) +Shares issued for stock options exercised, net ( 187,955 shares) +0.2 2.9 3.1 +Stock-based compensation expense +19.1 19.1 +Cash dividends declared ($ 0.40 per share) +( 33.2 ) ( 33.2 ) +Issuance of treasury shares ( 10,695 shares) +( 0.2 ) 0.2 — +Divestiture ( 14.7 ) ( 14.7 ) +Balance at December 28, 2024 $ 113.7 $ 382.7 $ 849.5 $ ( 147.8 ) $ ( 890.8 ) $ 9.2 $ 316.5 +See accompanying notes to consolidated financial statements. +42 +WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES +Notes to Consolidated Financial Statements +Fiscal Years 2024, 2023 and 2022 +1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES +Nature of Operations +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel; performance outdoor and athletic footwear and apparel; kids’ footwear; industrial work shoes, boots and apparel; and uniform shoes and boots. The Company’s portfolio of owned and licensed brands includes: Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Stride Rite ® , Sweaty Betty ® and Wolverine ® . The Company’s products are marketed worldwide through owned operations, through licensing and distribution arrangements with third parties, and through joint ventures. The Company also operates retail stores and eCommerce sites to market both its own brands and branded footwear and apparel from other manufacturers. +Effective February 4, 2023, the Company completed the sale of the Keds ® business. See Note 20 for further discussion. +In the third quarter of fiscal 2023, the Company entered into a multi-year licensing agreement of the Hush Puppies ® brand in the United States and Canada and completed the sale of the Hush Puppies ® trademarks, patents, copyrights, and domains in China, Hong Kong, and Macau. The Company continues to own the Hush Puppies ® brand throughout the rest of the world. See Note 20 for further discussion. +Effective August 23, 2023, the Company completed the sale of the U.S. Leathers business and effective December 28, 2023, the Company completed the sale of the Asia-based Leathers business. See Note 20 for further discussion. +Effective January 1, 2024, the Company completed the sale of the Company’s equity interests in joint venture entities that sourced and marketed Merrell ® and Saucony ® footwear and apparel products in China. See Note 20 for further discussion. +Effective January 10, 2024, the Company completed the sale of the Sperry ® business. See Note 20 for further discussion. +Effective May 4, 2024, the Company entered into global multi-year licensing agreements of the Merrell ® and Saucony ® kids footwear and Merrell ® apparel and accessories. +Principles of Consolidation and Basis of Presentation +The consolidated financial statements include the accounts of Wolverine World Wide, Inc. and its majority-owned subsidiaries (collectively, the “Company”) and any variable interest entities for which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. +Fiscal Year +The Company’s fiscal year is the 52- or 53-week period that ends on the Saturday nearest to December 31. Fiscal years 2024, 2023 and 2022 each had 52 weeks. +Use of Estimates +The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. +Revenue Recognition +The Company recognizes revenue in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers . Revenue is recognized upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company identifies the performance obligation in the contract, determines the transaction price, allocates the transaction price to the performance obligations and recognizes revenue upon completion of the performance obligation. +Control of the Company's goods and services, and associated revenue, are transferred to customers at a point in time. The Company’s contract revenue consists of wholesale revenue and direct-to-consumer revenue. Wholesale revenue is recognized for products sourced by the Company when control transfers to the customer generally occurring upon the shipment or delivery of branded products to the customer. Direct-to-consumer includes eCommerce revenue that is recognized for products sourced by the Company when control transfers to the customer once the related goods have been shipped and retail store revenue is +43 +recognized at time of sale. The shipment of goods, or point of purchase for retail store sales, was evaluated to best represent when control transfers based on the Company’s right of payment for the goods, the customer’s legal title to the asset, the transfer of physical possession and the customer having the risks and rewards of the goods. +Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs that are charged to and reimbursed by a customer are recognized as revenue, while the related expenses incurred by the Company are recorded as cost of goods sold. The Company has elected the practical expedient to treat shipping and handling activities that occur after control of the goods transfers to the customer as fulfillment activities. +Payment terms for the Company's revenue vary by sales channel. Standard credit terms apply to the Company's wholesale receivables, while payment is rendered at the time of sale within the direct-to-consumer channel. The timing of revenue recognition, billings and cash collections results in billed accounts receivable and customer advances (contract liabilities) on the consolidated balance sheets. Generally, billing occurs commensurate to revenue recognition resulting in contract assets. See Note 6 for additional information. +Cost of Goods Sold +Cost of goods sold includes the actual product costs, including inbound freight charges and certain outbound freight charges, purchasing, sourcing, inspection and receiving costs. Warehousing costs are included in selling, general and administrative expenses. +Advertising Costs +Advertising costs are expensed as incurred, except for certain materials that are expensed the first time that the advertising takes place. Advertising expenses were $ 140.3 million, $ 169.3 million and $ 220.7 million for fiscal years 2024, 2023 and 2022, respectively. Prepaid advertising totaled $ 1.3 million and $ 2.6 million as of December 28, 2024 and December 30, 2023, respectively. +Earnings Per Share +The Company calculates earnings per share in accordance with FASB ASC Topic 260, Earnings Per Share (“ASC 260”). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. Under the guidance in ASC 260, the Company’s unvested share-based payment awards that contain non-forfeitable rights to dividends, whether paid or unpaid, are participating securities and must be included in the computation of earnings per share pursuant to the two-class method. +Cash Equivalents +Cash equivalents include highly liquid investments with an original maturity of three months or less. Cash equivalents are stated at cost, which approximates fair value. +Allowance for Credit Losses +The Company maintains an allowance for credit losses on accounts receivable that represents estimated losses resulting from its customers’ failure to make required payments. Company management evaluates the allowance for credit losses based on a review of current customer status and historical collection experience along with current and reasonable supportable forecasts of future economic conditions. +Inventories +The Company values its inventory at the lower of cost or net realizable value. Cost is determined by the LIFO method for certain domestic finished product inventories. Cost is determined using the FIFO method for all raw materials, work-in-process and finished product inventories in foreign countries and certain domestic finished product inventories. The average cost of inventory is used for finished product inventories of the Company’s U.S. retail store business inventory. The Company has applied these inventory cost valuation methods consistently from year to year. +The Company reduces the carrying value of its inventories to the lower of cost or net realizable value for excess or obsolete inventories based upon assumptions about future demand and market conditions. If the Company were to determine that the estimated realizable value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are different from those projected, adjustments to those inventory reserves may be required. The adjustments would increase or decrease the Company’s cost of sales and net income in the period in which they were realized or recorded. Inventory quantities are verified at various times throughout the year by performing physical inventory counts and subsequently comparing those results to perpetual inventory +44 +balances. If the Company determines that adjustments to the inventory quantities are appropriate, an adjustment to the Company’s cost of goods sold and inventory is recorded in the period in which such determination was made. +Property, Plant and Equipment +Property, plant and equipment are stated on the basis of cost and include expenditures for buildings, leasehold improvements, furniture and fixtures, material handling systems, equipment and computer hardware and software. Normal repairs and maintenance are expensed as incurred. Depreciation of property, plant and equipment is computed using the straight-line method. The depreciable lives range from 14 to 20 years for buildings, from 5 to 15 years for leasehold improvements, from 3 to 10 years for furniture, fixtures and equipment and from 3 to 10 years for software. +Leases +The Company’s leases consist primarily of corporate offices, retail stores, distribution centers, showrooms, vehicles and office equipment. The Company leases assets in the normal course of business to meet its current and future needs while providing flexibility to its operations. The Company enters into contracts with third parties to lease specifically identified assets. Most of the Company’s leases have contractually specified renewal periods. Most retail store leases have early termination clauses that the Company can elect if stipulated sales amounts are not achieved. The Company determines the lease term for each lease based on the terms of each contract and factors in renewal and early termination options if such options are reasonably certain to be exercised. +Under FASB ASC Topic 842, Leases , the Company has elected the practical expedient to account for lease components and nonlease components associated with individual leases as a single lease component for all of its leases. In addition, the Company has elected to account for multiple lease components as a single lease component. The Company’s leases may include variable lease costs such as payments based on changes to an index, payments based on a percentage of retail store sales, and maintenance, utilities, shared marketing or other service costs that are paid directly to the lessor under terms of the lease. The Company recognizes variable lease payments when the amounts are incurred and determinable. The Company has elected to account for leases of less than one year as short-term leases and accordingly does not recognize a right-of-use asset or lease liability for these leases. The Company recognizes rent expense on a straight-line basis over the lease term. +The Company subleases certain portions of leased offices and distribution centers that exceed the Company’s current operational needs. Since the Company utilizes the majority of the leased space and retains the obligation to the lessor, the underlying leases continue to be accounted for as operating leases. Sublease income is recognized on a straight-line basis over the term of the sublease and is recognized in other expense (income), net on the consolidated statements of operations. +The Company recognizes a lease liability in current and noncurrent liabilities equal to the present value of the fixed future lease payments using an incremental borrowing rate as of the commencement date of each lease. The incremental borrowing rate is based on an interest rate that the Company would normally pay to borrow on a collateralized basis over a similar term and an amount equal to the lease payments. The Company also recognizes a right-of-use asset, which is equal to the lease liability as of December 28, 2024 adjusted for the remaining balance of accrued rent and unamortized lease incentives. +Deferred Financing Costs +Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining commitments for financing that result in a closing of such financings for the Company. Deferred financing costs related to fixed term borrowings are recorded as a reduction of long-term debt in the consolidated balance sheet. Deferred financing costs related to revolving credit facilities are recorded as an other noncurrent asset in the consolidated balance sheet. These costs are amortized into earnings through interest expense over the terms of the respective agreements. +Derivatives +The Company follows FASB ASC Topic 815, Derivatives and Hedging ("ASC 815"), which requires that all derivative instruments be recorded on the consolidated balance sheets at fair value by establishing criteria for designation and effectiveness of hedging relationships. The Company does not hold or issue financial instruments for trading purposes. Refer to Note 11 for further discussion regarding the Company's derivative arrangements and derivative accounting. +Goodwill and Other Intangibles +Goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets of acquired businesses. Indefinite-lived intangibles include trademarks and trade names. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill and indefinite-lived intangible assets by reporting unit at least annually, or when indicators of impairment are present, to determine if such assets may be impaired. The Company includes assumptions such as a discount rate and expected future operating performance, which includes forecasted revenue growth, earnings before interest, taxes, depreciation +45 +and amortization ("EBITDA") margin and cost of capital, which are derived from internal projections and operating plans, as part of a discounted cash flow analysis to estimate fair value. If the carrying value of these assets is not recoverable, based on the discounted cash flow analysis, management compares the fair value of the assets to the carrying value. Goodwill and indefinite-lived intangibles are considered impaired if the recorded value exceeds the fair value. +The Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill and indefinite-lived intangible asset are less than their carrying value. The Company would not be required to quantitatively determine the fair value unless the Company determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than the carrying value. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. See Note 4 for information related to the results of the Company's annual test. +Impairment of Long-Lived Assets +The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or an asset group may not be recoverable. Each impairment test is based on a comparison of the carrying amount of the asset or asset group to the future undiscounted net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment amount to be recognized is the amount by which the carrying value of the assets exceeds their fair value. +In 2024, the Company incurred $ 6.1 million in non-cash impairment charges on the long-lived property, plant and equipment and lease right-of-use assets at the Company’s distribution center in Louisville, Kentucky to adjust the carrying amount of the assets to their estimated fair value. The Louisville distribution center impairment charges were related to the Company’s transformation activities and actions to consolidate distribution operations. The long-lived assets have no fair value after the Company stopped using the distribution center. +The Company incurred $ 3.2 million in 2024 and $ 37.3 million in 2023, respectively, in non-cash impairment charges on certain Corporate U.S., U.K. and Canada office long-lived property, plant and equipment and right-of-use assets, to adjust the carrying amount of the assets to estimated fair value. The impairment charges primarily resulted from divestiture activities and consolidation of corporate office space. Fair value was estimated based on the discounted cash flows of estimated rental income from subleases net of estimated expenses. +In 2023, the Company incurred $ 1.9 million in non-cash impairment charges on certain Sperry ® retail store assets where the estimated future cash flows did not support the net book value of the assets. +The following table provides details related to asset impairment charges recorded: +(In millions) December 28, +2024 December 30, +2023 +Lease right-of-use assets impairment $ 5.9 $ 28.6 +Property, plant and equipment impairment 3.4 10.6 +Indefinite-lived trade name impairment (1) +— 38.3 +Held for sale impairment of carrying value (2) +— 96.8 +Impairment of Sperry ® assets not sold (2) +— 11.0 +Total impairment of long-lived assets $ 9.3 $ 185.3 +(1) See Note 4 for information related to the Indefinite-lived trade name impairment charge recorded in fiscal 2023. +(2) See Note 20 for information related to the held for sale carrying value impairment charge and impairment charge of Sperry ® assets not sold recorded in fiscal 2023. +Fair Value of Financial Instruments +The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides a consistent definition of fair value, focuses on exit price, prioritizes the use of market-based inputs over entity-specific inputs for +46 +measuring fair value and establishes a three-tier hierarchy for fair value measurements. ASC 820 requires fair value measurements to be classified and disclosed in one of the following three categories: +Level 1: Fair value is measured using quoted prices (unadjusted) in active markets for identical assets and liabilities. +Level 2: Fair value is measured using either direct or indirect inputs, other than quoted prices included within Level 1, which are observable for similar assets or liabilities. +Level 3: Fair value is measured using valuation techniques in which one or more significant inputs are unobservable. +Environmental +The Company establishes a reserve for estimated environmental remediation costs based upon the evaluation of currently-available facts with respect to each individual affected site. The costs are recorded on an undiscounted basis when they are probable and reasonably estimable, generally no later than the completion of feasibility studies, the Company’s commitment to a plan of action, or approval by regulatory agencies. Liabilities for estimated costs of environmental remediation are based primarily upon third-party environmental studies, other internal analysis and the extent of the contamination and the nature of required remedial actions at each site. The Company records adjustments to the estimated costs if there are changes in the scope of the required remediation activity, extent of contamination, governmental regulations or remediation technologies. Environmental costs relating to existing conditions caused by past operations that do not contribute to current or future revenues are expensed as incurred. +Assets related to potential recoveries from other responsible parties are recognized when a definitive agreement is reached and collection of cash is realizable. Recoveries of covered losses under insurance policies are recognized only when realization of the claim is deemed probable. +The Company is subject to legal proceedings and claims related to the environmental matters described in Note 17. The Company routinely assesses the legal and factual circumstances of each matter and the likelihood of any adverse outcomes in these matters, as well as ranges of possible losses. Assessments of lawsuits and claims can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The Company accrues an estimated liability for legal proceeding claims that are both probable and estimable and reserves may change in future periods due to new developments in each matter. For further discussion, refer to Note 17. +Retirement Benefits +The determination of the obligation and expense for retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets, mortality rates and rates of increase in compensation. These assumptions are reviewed with the Company’s actuaries and updated annually based on relevant external and internal factors and information, including, but not limited to, long-term expected asset returns, rates of termination, regulatory requirements and plan changes. See Note 13 for additional information. The Company has elected to measure its defined benefit plan assets and obligations as of December 31 of each year, regardless of the Company's actual fiscal year end date, which is the Saturday nearest to December 31. +Stock Based Compensation +The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation – Stock Compensation . The Company generally grants restricted stock or units (“Restricted Awards”), performance-based restricted stock or units (“Performance Awards”) and stock options under its stock-based compensation plans. All stock-based awards are accounted for based on their respective grant date fair values. Compensation cost for all awards expected to vest is recognized over the vesting period, including accelerated recognition for retirement-eligible employees. +Income Taxes +The provision for income taxes is based on the geographic dispersion of the earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently-enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax assets will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which the Company makes such a determination. The Company includes Global Intangible Low Tax Income ("GILTI") as a current period tax expense when incurred. +47 +The Company records an increase in liabilities for income tax accruals associated with tax benefits claimed on tax returns but not recognized for financial statement purposes (unrecognized tax benefits). In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benef it is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. T he Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. +Foreign Currency +For most of the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the year-end exchange rate. Operating statement amounts are translated at average exchange rates for each period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are included in the consolidated statements of operations and were not material for fiscal years 2024, 2023 and 2022. +Business Combination +The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, the consolidated financial statements reflect the operations of an acquired business starting from the acquisition date. +All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The Company allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included in the purchase price and is recognized at its fair value on the acquisition date. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. +The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques and requires management to make judgments that may involve the use of significant estimates. For intangible assets acquired in a business combination, the Company typically uses the income method. Significant estimates used in valuing certain intangible assets include, but are not limited to, the amount and timing of future cash flows, growth rates and discount rates, among other items. If the actual results differ from the estimates and judgments used, the amounts recorded in the Consolidated Financial Statements may be exposed to potential impairment of the intangible assets and goodwill as discussed in the "Goodwill and Indefinite-Lived Intangibles" accounting policy. +2. NEW ACCOUNTING STANDARDS +The FASB has issued the following Accounting Standards Update (“ASU”) that the Company has adopted. The following is a summary of the new standard. +Standard Description Effect on the Financial Statements +ASU 2023-07, Improvements to Reportable Segment Disclosures Requires entities disclose on an annual and interim basis significant segment expense, including an amount and composition description for other segment items, and how reported measures of profit or loss are used by the chief operating decision maker in assessing segment performance and deciding how to allocate resources. The Company adopted ASU 2023-07 for the year-ended December 28, 2024 and applied it retrospectively to all prior periods presented. Refer to Note 18, "Business Segments." +48 +The FASB has issued the following ASUs that the Company has not yet adopted. The following is a summary of the new standards and anticipated impact of adopting these new standards. +Standard Description Effect on the Financial Statements +ASU 2023-09, Improvements to Income Tax Disclosures Requires annual disclosures of prescribed standard categories for the components of the effective tax rate reconciliation, disclosure of income taxes paid disaggregated by jurisdiction, and other income-tax related disclosures. The ASU is effective on a prospective basis, with retrospective application permitted, for fiscal years after December 15, 2024. The Company is evaluating the impact of the new standard on its Consolidated Financial Statements. +ASU 2024-03, Disaggregation of Income Statement Expenses Requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The amendments in ASU 2024-03 should be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. The Company is evaluating the impact of the new standard on its Consolidated Financial Statements. +3. EARNINGS PER SHARE +The following table sets forth the computation of basic and diluted earnings per share: +Fiscal Year +(In millions, except per share data) 2024 2023 2022 +Numerator: +Net earnings (loss) attributable to Wolverine World Wide, Inc. $ 47.9 $ ( 39.6 ) $ ( 188.3 ) +Less: net earnings attributed to participating share-based awards +( 1.6 ) ( 0.7 ) ( 0.6 ) +Net earnings (loss) used to calculate earnings per share $ 46.3 $ ( 40.3 ) $ ( 188.9 ) +Denominator: +Weighted average shares outstanding +80.0 79.4 79.7 +Net earnings (loss) per share: +Basic +$ 0.58 $ ( 0.51 ) $ ( 2.37 ) +Diluted +$ 0.58 $ ( 0.51 ) $ ( 2.37 ) +For fiscal years 2024, 2023 and 2022, 1,592,297 , 2,022,676 and 1,434,081 outstanding stock options, respectively, have not been included in the denominator for the computation of diluted earnings per share because they were anti-dilutive. +The Company has 2,000,000 authorized shares of $ 1 par value preferred stock, none of which was issued or outstanding as of December 28, 2024 or December 30, 2023. The Company has designated 150,000 shares of preferred stock as Series A junior participating preferred stock and 500,000 shares of preferred stock as Series B junior participating preferred stock for possible future issuance. +The Company did not repurchase Company common stock in fiscal years 2024 or 2023. The Company repurchased $ 81.3 million of Company common stock in fiscal year 2022 under stock repurchase plans. In addition to the stock repurchase program activity, the Company acquired $ 2.6 million, $ 5.8 million and $ 7.7 million of Company common stock in fiscal years 2024, 2023 and 2022, respectively, in connection with employee transactions related to stock incentive plans. +On March 7, 2024, the Company's Board of Directors approved a common stock repurchase program that authorized the repurchase of $ 150.0 million of common stock over a three-year period. +49 +4. GOODWILL AND OTHER INTANGIBLE ASSETS +The changes in the carrying amount of goodwill are as follows: +Fiscal Year +(In millions) 2024 2023 +Goodwill balance at beginning of the year $ 427.1 $ 485.0 +Sale of a business (see Note 20) — ( 20.4 ) +Reclassified to assets held for sale (1) +— ( 43.0 ) +Foreign currency translation effects ( 2.5 ) 5.5 +Goodwill balance at end of the year $ 424.6 $ 427.1 +(1) Represents goodwill associated with the Sperry ® business classified as held for sale as of fiscal 2023, refer to Note 20. +Goodwill balances are net of accumulated impairment charges. Accumulated impairment charges were $ 48.4 million as of December 28, 2024 and December 30, 2023, and are related to the Sweaty Betty ® reporting unit, which is part of the Active reportable segment. +The Company performs its annual testing for goodwill and indefinite-lived intangible asset impairment at the beginning of the fourth quarter of the fiscal year for all reporting units. The Company did not recognize any impairment charges for goodwill and indefinite-lived intangible assets during 2024 and did not recognize any impairment charges for goodwill during 2023. The Company’s indefinite-lived intangible assets, which comprise trade names and trademarks, totaled $ 173.0 million and $ 174.1 million as of December 28, 2024 and December 30, 2023, respectively. In the third quarter of 2023, due to the continued lower current year performance of the Sperry ® brand, the Company determined that a triggering event had occurred requiring impairment testing of the Sperry ® trade name. Based on the results of the impairment testing, the Company recognized impairment charges of $ 38.3 million to the Sperry ® trade name. The impairment charge was due to reductions in future cash flow assumptions mainly due to decreases in anticipated future performance and an increase in the discount rate used in the valuation. In the fourth quarter of fiscal 2022, after the c ompletion of the annual impairment testing, the Company recognized impairment charges of $ 191.0 million and $ 189.3 million to the Sperry ® and Sweaty Betty ® trade names, respectively. +For the Sweaty Betty ® reporting unit included in the fiscal 2024 annual impairment test, the estimated fair value of the reporting unit exceeded the carrying value by 3 %. The Sweaty Betty ® trade name was valued using the income approach, specifically the multi-period excess earnings method. The key assumptions used in the valuation were revenue growth, EBITDA margin, and the discount rate. Although the Company believes the estimates and assumptions used in the valuation were appropriate, it is possible assumptions could change in future periods. The risk of future impairment to the Sweaty Betty ® trade name and Sweaty Betty ® goodwill depend on assumptions used in the determination of the trade name's and reporting unit's fair value, such as revenue growth, EBITDA margin, taxes, depreciation and amortization margin, discount rate, and assumed tax rate, or if macroeconomic conditions deteriorate and adversely affect the values of the Company's Sweaty Betty ® trade name and the Sweaty Betty ® reporting unit. A future impairment charge of the Sweaty Betty ® trade name and the Sweaty Betty ® reporting unit goodwill could have an adverse material effect on the Company's consolidated financial results The carrying values of the Company’s Sweaty Betty ® trade name indefinite-lived intangible asset and the Sweaty Betty ® reporting unit goodwill were $ 98.4 million and $ 52.4 million, respectively, as of December 28, 2024. +Amortizable intangible assets are amortized using the straight-line method over their estimated useful lives. The combined gross carrying values and accumulated amortization for these amortizable intangibles are as follows: +December 28, 2024 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 58.8 $ 31.2 $ 27.6 9 +Other 23.1 19.2 3.9 3 +Total $ 81.9 $ 50.4 $ 31.5 +December 30, 2023 +(In millions) Gross carrying +value Accumulated +amortization Net Average remaining life (years) +Customer relationships $ 59.6 $ 28.1 $ 31.5 9 +Other 21.3 17.9 3.4 3 +Total $ 80.9 $ 46.0 $ 34.9 +50 +Amortization expense for these amortizable intangible assets was $ 4.8 million, $ 7.2 million and $ 7.9 million for fiscal years 2024, 2023 and 2022, respectively. Estimated aggregate amortization expense for such intangibles for the fiscal years subsequent to December 28, 2024 is as follows: +(In millions) 2025 2026 2027 2028 2029 +Amortization expense $ 4.5 $ 4.2 $ 4.0 $ 3.7 $ 3.3 +5. ACCOUNTS RECEIVABLE +The Company and certain of its subsidiaries sell, on a continuous basis without recourse, their trade receivables to Rockford ARS, LLC (“Rockford ARS”), a wholly-owned bankruptcy-remote subsidiary of the Company. On December 7, 2022, Rockford ARS entered into a receivables purchase agreement (“RPA”), which was subsequently amended on April 15, 2024, to sell up to $ 125.0 million of receivables to certain purchasers (the “Purchasers”) on a recurring basis in exchange for cash (referred to as “capital” in the RPA) equal to the gross receivables transferred. The parties intend that the transfers of receivables to the Purchasers constitute purchases and sales of receivables. Rockford ARS has guaranteed to each Purchaser the prompt payment of sold receivables, and has granted a security interest in its assets for the benefit of the Purchasers. Under the RPA, which matures on December 5, 2025 each Purchaser’s share of capital accrues yield at a floating rate plus an applicable margin. The Company is the master servicer under the RPA, and is responsible for administering and collecting receivables. +The proceeds of the RPA are classified as operating activities in the Company's Consolidated Statement of Cash Flows. Cash received from collections of sold receivables may be used to fund additional purchases of receivables on a revolving basis or to return all or any portion of outstanding capital of the Purchasers. Subsequent collections on the pledged receivables, which have not been sold, will be classified as operating cash flows at the time of collection. Total receivables sold under the RPA were $ 451.7 million and $ 613.9 million in fiscal years 2024 and 2023, respectively, and total cash collections under the RPA were $ 433.3 million and $ 662.7 million in fiscal years 2024 and 2023, respectively. The fair value of the sold receivables approximated book value due to their credit quality and short-term nature, and as a result, no gain or loss on sale of receivables was recorded. +As of the fiscal years ended December 28, 2024 and December 30, 2023, the amount sold to the Purchasers was $ 112.4 million and $ 93.9 million, respectively, which was derecognized from the Consolidated Balance Sheets. As collateral against sold receivables, Rockford ARS maintains a certain level of unsold receivables, which was $ 64.9 million and $ 62.3 million as of the fiscal years ended December 28, 2024 and December 30, 2023, respectively. +6. REVENUE FROM CONTRACTS WITH CUSTOMERS +Revenue Recognition and Performance Obligations +The Company reports disaggregated revenue for the wholesale and direct-to-consumer sales channels, which are reconciled to the Company’s reportable segments. The wholesale channel includes royalty revenues, which operates in a similar manner as other wholesale revenues due to similar oversight and management, customer base, the performance obligation (footwear and apparel goods) and point in time completion of the performance obligation. +Fiscal Year +(in millions) 2024 2023 2022 +Active Group: +Wholesale $ 815.7 $ 999.1 $ 1,086.6 +Direct-to-consumer 430.4 440.0 483.6 +Total 1,246.1 1,439.1 1,570.2 +Work Group: +Wholesale 409.9 428.6 532.0 +Direct-to-consumer 45.4 52.0 58.5 +Total 455.3 480.6 590.5 +Other: +Wholesale 45.5 232.8 374.4 +Direct-to-consumer 8.1 90.4 149.7 +Total 53.6 323.2 524.1 +Total revenue $ 1,755.0 $ 2,242.9 $ 2,684.8 +51 +The Company has agreements to license symbolic intellectual property with minimum guarantees or fixed consideration. The Company is due $ 39.4 million of remaining fixed transaction price under its license agreements as of December 28, 2024, which it expects to recognize per the terms of its contracts over the course of time through December 2028 . The Company has elected to omit the remaining variable consideration under its license agreements given the Company recognizes revenue equal to what it has the right to invoice and that amount corresponds directly with the value to the customer of the Company’s performance to date. +Reserves for Variable Consideration +Revenue is recorded at the net sales price (“transaction price”), which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, customer markdowns, customer rebates and other sales incentives relating to the sale of the Company’s products. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales. These estimates take into consideration a range of possible outcomes, which are probability-weighted in accordance with the expected value method for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts. Revenue recognized during fiscal years 2024 and 2023 related to the Company’s contract liabilities was nominal. +The Company’s contract balances are as follows: +(In millions) December 28, +2024 December 30, +2023 +Product returns reserve $ 12.2 $ 13.1 +Customer markdowns reserve 0.5 5.1 +Other sales incentives reserve 3.6 4.2 +Customer rebates liability 10.4 14.7 +Customer advances liability 7.5 6.8 +The amount of variable consideration included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Actual amounts of consideration ultimately received may differ from initial estimates. If actual results in the future vary from initial estimates, the Company subsequently adjusts these estimates, which would affect net revenue and earnings in the period such variances become known. +Product Returns +Consistent with industry practice, the Company offers limited product return rights for various return scenarios. The Company estimates the amount of product sales that may be returned by customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, and an offsetting increase to other accrued liabilities on the consolidated balance sheets. The Company believes there is sufficient current and historical information to record an estimate of the expected value of product returns although actual returns could differ from recorded amounts. The estimated cost of inventory for product returns is recorded in prepaid expenses and other current assets on the consolidated balance sheets. The estimated cost of inventory for product returns was $ 4.4 million and $ 6.1 million at December 28, 2024 and December 30, 2023, respectively. +Customer Markdowns +Markdowns represent the estimated reserve resulting from commitments to sell products to the Company’s customers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the end consumer. The reserve is established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets. +Other Sales Incentives +The Company accrues for other customer allowances for certain customers that purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and a reduction to trade receivables, net on the consolidated balance sheets depending on the nature of the item. +52 +Customer Rebates +The Company accrues for customer rebates related to customers who purchase required volumes or meet other criteria. These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and an establishment of a current liability on the consolidated balance sheets. +Customer Advances +The Company recognizes a liability for amounts received from customers before revenue is recognized. Customer advances are recognized in other accrued liabilities on the consolidated balance sheets. +7. INVENTORIES +The Company used the LIFO method to value inventories of $ 55.4 million and $ 88.8 million at December 28, 2024 and December 30, 2023, respectively. During fiscal years 2024 and 2023, changes in the LIFO reserve decreased cost of goods sold by $ 3.9 million and increased cost of goods sold $ 1.3 million, respectively. If the FIFO method had been used, inventories would have been $ 8.5 million and $ 12.3 million higher than reported at December 28, 2024 and December 30, 2023, respectively. +8. DEBT +Total debt consists of the following obligations: +(In millions) December 28, +2024 December 30, +2023 +Term Facility, due October 21, 2026 $ 32.5 $ 71.7 +Senior Notes, 4.000% interest, due August 15, 2029 550.0 550.0 +Borrowings under revolving credit agreements 70.0 305.0 +Unamortized deferred financing costs ( 4.5 ) ( 5.9 ) +Total debt $ 648.0 $ 920.8 +The Company’s Credit Agreement provides for a term loan A facility (the “Term Facility”) and for a revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”). The maturity date of the loans under the Senior Credit Facilities is October 21, 2026. The Credit Agreement provides for a debt capacity of up to an aggregate debt amount (including outstanding term loan principal and revolver commitment amounts in addition to permitted incremental debt) not to exceed $ 2.0 billion unless certain specified conditions set forth in the Credit Agreement are met. +The Term Facility requires quarterly principal payments with a balloon payment due on October 21, 2026. The scheduled principal payments due under the Term Facility over the next 12 month s total $ 10.0 million as of December 28, 2024 and are recorded as current maturities of long-term debt on the consolidated balance sheets. In addition, the Company made payments towards the Term Facility in accordance with disposition proceeds language contained in the Credit Agreement. +The Revolving Facility allows the Company to borrow up to an aggregate amount of $ 800.0 million. The Revolving Facility also includes a $ 100.0 million swingline subfacility and a $ 50.0 million letter of credit subfacility. The Company had outstanding letters of credit under the Revolving Facility of $ 6.0 million and $ 6.6 million as of December 28, 2024 and December 30, 2023, respectively. These outstanding letters of credit reduce the borrowing capacity under the Revolving Facility. +The interest rates applicable to amounts outstanding under Term Facility and to U.S. dollar denominated amounts outstanding under the Revolving Facility are, at the Company’s option, either (1) the Alternate Base Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 0.125 % to 1.000 %, or (2) the Eurocurrency Rate plus an Applicable Margin as determined by the Company’s Consolidated Leverage Ratio, within a range of 1.125 % to 2.000 % (all capitalized terms used in this sentence are as defined in the Credit Agreement). At December 28, 2024, the Term Facility and the Revolving Facility had a weighted-average interest rate of 5.84 %. +The obligations of the Company pursuant to the Credit Agreement are guaranteed by substantially all of the Company’s material domestic subsidiaries and secured by substantially all of the personal and real property of the Company and its material domestic subsidiaries, subject to certain exceptions. +The Senior Credit Facilities also contain certain affirmative and negative covenants, including covenants that limit the ability of the Company and its Restricted Subsidiaries to, among other things: incur or guarantee indebtedness; incur liens; pay dividends or repurchase stock; enter into transactions with affiliates; consummate asset sales, acquisitions or mergers; prepay certain other +53 +indebtedness; or make investments, as well as covenants restricting the activities of certain foreign subsidiaries of the Company that hold intellectual property related assets. Further, the Senior Credit Facilities require compliance with the following financial covenants: a maximum Consolidated Leverage Ratio and a minimum Consolidated Interest Coverage Ratio (all capitalized terms used in this paragraph are as defined in the Senior Credit Facilities). As of December 28, 2024, the Company was in compliance with all covenants and performance ratios under the Senior Credit Facilities. +On December 21, 2023, the Company entered into the fifth amendment (the "Fifth Amendment") to its Credit Agreement, dated as of July 31, 2012. The Fifth Amendment provides the Company with additional allowable disposition capacity in fiscal 2023 and fiscal 2024 to support the Company's transformation. +The Company's $ 550.0 million 4.000 % senior notes issued on August 26, 2021 are due on August 15, 2029. Related interest payments are due semi-annually. The senior notes are guaranteed by substantially all of the Company’s domestic subsidiaries. +The Company has a foreign revolving credit facility with aggregate available borrowing s of $ 1.0 million that are un committed and, therefore, each borrowing against the facility is subject to approval by the lender. There were no borrowings against this facility as of December 28, 2024 and December 30, 2023. +The Company included in interest expense the amortization of deferred financing costs of $ 2.6 million, $ 2.2 million, and $ 2.0 million in fiscal years 2024, 2023 and 2022, respectively. +Annual maturities of debt for the fiscal years subsequent to December 28, 2024 are as follows: +(In millions) 2025 2026 2027 2028 2029 Thereafter +Annual maturities of debt +$ 80.0 $ 22.5 $ — $ — $ 550.0 $ — +9. PROPERTY, PLANT AND EQUIPMENT +Property, plant and equipment consisted of the following: +(In millions) December 28, +2024 December 30, 2023 +Land $ 0.6 $ 0.6 +Buildings and leasehold improvements 96.0 110.0 +Furniture, fixtures and equipment 150.5 169.6 +Software 74.9 71.3 +Gross cost 322.0 351.5 +Less: accumulated depreciation 232.3 255.2 +Property, plant and equipment, net $ 89.7 $ 96.3 +Depreciation expense was $ 21.4 million, $ 27.7 million and $ 26.7 million for fiscal years 2024, 2023 and 2022, respectively. +10. LEASES +The following is a summary of the Company’s lease cost. +Fiscal Year +(In millions) 2024 2023 +Operating lease cost $ 32.0 $ 40.4 +Variable lease cost 11.3 13.8 +Short-term lease cost 1.8 4.6 +Sublease income ( 6.7 ) ( 6.0 ) +Total lease cost $ 38.4 $ 52.8 +The following is a summary of the Company’s supplemental cash flow information related to leases. +54 +Fiscal Year +(In millions) 2024 2023 +Cash paid for operating lease liabilities $ 44.4 $ 44.3 +Operating lease assets obtained in exchange for lease liabilities 16.2 14.2 +The weighted-average discount rate for operating leases as of December 28, 2024 is 5.1 %. The weighted-average remaining lease term for operating leases as of December 28, 2024 is 7.0 years. Future undiscounted cash flows for operating leases for the fiscal periods subsequent to December 28, 2024 are as follows: +(In millions) Operating Leases +2025 $ 34.0 +2026 27.7 +2027 23.3 +2028 20.1 +2029 18.5 +Thereafter 54.9 +Total future payments 178.5 +Less: imputed interest 28.8 +Recognized lease liability $ 149.7 +The Company did not enter into any real estate leases with commencement dates subsequent to December 28, 2024. +11. DERIVATIVE FINANCIAL INSTRUMENTS +The Company utilizes foreign currency forward exchange contracts designated as cash flow hedges to manage the volatility associated primarily with U.S. dollar inventory purchases made by non-U.S. wholesale operations in the normal course of business. These foreign currency forward exchange hedge contracts extended out to a maximum of 531 days and 531 days as of December 28, 2024 and December 30, 2023, respectively. If, in the future, the foreign exchange contracts are determined not to be highly effective or are terminated before their contractual termination dates, the Company would remove the hedge designation from those contracts and reclassify into earnings the unrealized gains or losses that would otherwise be included in accumulated other comprehensive income (loss) within stockholders’ equity. +The Company also utilizes foreign currency forward exchange contracts that are not designated as hedging instruments to manage foreign currency transaction exposure. Foreign currency derivatives not designated as hedging instruments are offset by foreign exchange gains or losses resulting from the underlying exposures of foreign currency denominated assets and liabilities. +The Company has an interest rate swap arrangement, which unless otherwise terminated, will mature on May 30, 2025 . This agreement, which exchanges floating rate interest payments for fixed rate interest payments over the life of the agreement without the exchange of the underlying notional amounts, has been designated as a cash flow hedge of the underlying debt. The notional amount of the interest rate swap arrangement is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The differential paid or received on the interest rate swap arrangement is recognized as interest expense, net. In accordance with ASC 815, the Company has formally documented the relationship between the interest rate swap and the variable rate borrowing, as well as its risk management objective and strategy for undertaking the hedge transactions. This process included linking the derivative to the specific liability or asset on the balance sheet. The Company also assessed at the inception of the hedge, and continues to assess on an ongoing basis, whether the derivative used in the hedging transaction is highly effective in offsetting changes in the cash flows of the hedged item. +The notional amounts of the Company’s derivative instruments are as follows: +(Dollars in millions) December 28, +2024 December 30, +2023 +Foreign exchange hedge contracts $ 263.5 $ 269.0 +Interest rate swap 16.7 75.3 +55 +The recorded fair values of the Company’s derivative instruments are as follows: +(In millions) December 28, +2024 December 30, +2023 +Financial assets: +Foreign exchange hedge contracts $ 9.1 $ — +Interest rate swap 0.2 1.8 +Financial liabilities: +Foreign exchange hedge contracts $ ( 0.7 ) $ ( 5.1 ) +Foreign exchange hedge contract financial assets are recorded to prepaid expenses and other current assets and financial liabilities are recorded to other accrued liabilities on the consolidated balance sheets. Interest rate swap financial assets are recorded to other assets on the consolidated balance sheets. +12. STOCK-BASED COMPENSATION +The Company recognized stock-based compensation expense of $ 19.1 million, $ 15.2 million and $ 33.4 million and related income tax benefits of $ 3.7 million, $ 2.9 million and $ 6.5 million for grants under its stock-based compensation plans in the statements of operations for fiscal years 2024, 2023 and 2022, respectively. +As of December 28, 2024, the Company had 5,043,053 stock incentive units (stock options, stock appreciation rights, restricted stock, restricted stock units and common stock) available for issuance under the Stock Incentive Plan of 2024 ("Stock Plan"). Each stock option or stock appreciation right granted counts as 1.0 stock incentive unit. Stock options granted under the Stock Plan have an exercise price equal to the fair market value of the underlying stock on the grant date, expire no later than ten years from the grant date and generally vest over three years . All other awards granted, including Restricted Awards and Performance Awards, count as 1.0 stock incentive units for each share, restricted share or restricted stock unit granted. Restricted Awards issued under the Stock Plan are subject to certain restrictions, including a prohibition against any sale, transfer or other disposition by the officer or employee during the vesting period (except for certain transfers for estate planning purposes for certain officers), and a requirement to forfeit all or a certain portion of the award upon certain terminations of employment. These restrictions typically lapse over a three-year period from the date of the award. The Company has elected to recognize expense for these stock-based incentive plans ratably over the vesting term on a straight-line basis. Certain option and restricted awards provide for accelerated vesting under various scenarios, including retirement, death and disability, and upon a change in control of the Company. Awards issued to employees that meet the specified retirement age and service requirements are vested upon the employee's retirement in accordance with plan provisions and the applicable award agreements issued under the Stock Plan. The Company issues shares to plan participants upon exercise or vesting of stock-based incentive awards from either authorized, but unissued shares or treasury shares. +The Board of Directors awards an annual grant of Performance Awards to certain plan participants. The number of Performance Awards that will be earned (and eligible to vest) during the performance period will depend on the Company’s level of success in achieving two specifically identified performance targets. Any portion of the Performance Awards that are not earned by the end of the three-year measurement period will be forfeited. The final determination of the number of Performance Awards to be issued in respect to an award is determined by the Compensation Committee of the Company’s Board of Directors. +56 +Restricted Awards and Performance Awards +A summary of the unvested Restricted Awards and Performance Awards is as follows: +Restricted +Awards Weighted- +Average +Grant Date +Fair Value Performance +Awards Weighted- +Average +Grant Date +Fair Value +Unvested at January 1, 2022 1,208,000 $ 33.62 764,415 $ 35.69 +Granted 980,456 25.86 437,253 27.40 +Vested ( 452,448 ) 33.37 ( 343,290 ) 37.06 +Forfeited ( 219,530 ) 30.05 ( 83,724 ) 27.31 +Unvested at December 31, 2022 1,516,478 $ 28.95 774,654 $ 34.14 +Granted 1,678,585 13.66 686,294 14.82 +Vested ( 760,333 ) 28.49 ( 186,407 ) 33.88 +Forfeited ( 494,426 ) 21.71 ( 134,237 ) 26.92 +Unvested at December 30, 2023 1,940,304 $ 17.23 1,140,304 $ 23.78 +Granted 1,961,114 8.89 1,293,404 13.21 +Vested ( 781,487 ) 17.83 ( 57,529 ) 36.68 +Forfeited ( 351,036 ) 14.01 ( 263,893 ) 16.85 +Unvested at December 28, 2024 2,768,895 $ 11.32 2,112,286 $ 18.72 +As of December 28, 2024, there was $ 17.0 million of unrecognized compensation expense related to unvested Restricted Awards, which is expected to be recognized over a weighted-average period of 1.2 years. The total fair value of Restricted Awards vested during the year ended December 28, 2024 was $ 8.5 million. As of December 30, 2023, there was $ 19.0 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.5 years. The total fair value of Restricted Awards vested during the year ended December 30, 2023 was $ 11.1 million. As of December 31, 2022, there was $ 19.4 million of unrecognized compensation expense related to unvested Restricted Awards, which was expected to be recognized over a weighted-average period of 1.6 years. The total fair value of Restricted Awards vested during the year ended December 31, 2022 was $ 10.9 million. +As of December 28, 2024, there was $ 8.2 million of unrecognized compensation expense related to unvested Performance Awards, which is expected to be recognized over a weighted-average period of 1.7 years. The total fair value of Performance Awards vested during the year ended December 28, 2024 was $ 0.5 million. As of December 30, 2023, there was $ 5.0 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weighted-average period of 1.7 years. The total fair value of Performance Aw ards vested during the year ended December 30, 2023 was $ 5.7 million. As of December 31, 2022, there was $ 10.8 million of unrecognized compensation expense related to unvested Performance Awards, which was expected to be recognized over a weig hted-average period of 1.6 years. The total fair value of Performance Awards vested during the year ended December 31, 2022 was $ 9.3 million. +57 +Stock Options +The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes-Merton formula. The estimated weighted-average fair value for each option granted was $ 8.46 per share for fiscal year 2022. +A summary of the stock option transactions is as follows: +Shares Under Option Weighted-Average Exercise Price +Average Remaining Contractual Term (Years) +Aggregate Intrinsic Value +(In millions) +Outstanding at January 1, 2022 2,488,812 $ 22.29 3.2 $ 16.7 +Granted 20,171 25.19 +Exercised ( 74,482 ) 18.26 +Canceled ( 101,091 ) 22.57 +Outstanding at December 31, 2022 2,333,410 $ 22.43 2.4 $ — +Exercised ( 6,042 ) 16.51 +Canceled ( 366,352 ) 21.81 +Outstanding at December 30, 2023 1,961,016 $ 22.56 1.7 $ — +Exercised ( 187,955 ) 16.51 +Canceled ( 442,532 ) 27.60 +Outstanding at December 28, 2024 1,330,529 $ 21.74 1.0 $ 4.2 +Unvested at December 28, 2024 ( 1,127 ) +Exercisable at December 28, 2024 1,329,402 $ 21.74 1.0 $ 4.2 +The total pretax intrinsic value of stock options exercised during fiscal years 2024, 2023 and 2022 was $ 0.9 million, $ 0.0 million and $ 0.4 million, respectively. There was no unrecognized compensation expense related to stock option grants as of December 28, 2024 and as of December 30, 2023. As of December 31, 2022, there was $ 0.1 million of unrecognized compensation expense related to stock option awards expected to be recognized over a weighted-average period of 0.9 years. +The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price as of each fiscal year end, which would have been received by the option holders had all option holders exercised options, where the market price o f the Company's stock was above the strike price ("in-the-money"), as of that date. As of December 28, 2024, 750,351 outstanding options were exercisable and in-the-money. There were no in-the-money options exercisable as of December 30, 2023. The Company’s closing stock price was $ 22.48 per share as of December 28, 2024 and $ 8.89 per share as of December 30, 2023. +13. RETIREMENT PLANS +The Company has two non-contributory, defined benefit pension plans that provide retirement benefits to less than half of its domestic employees. The Company’s principal defined benefit pension plan, which is closed to new participants, provides benefits based on the employee’s years of service and final average earnings. The second plan is closed to new participants and no longer accrue future benefits. +The Company has a Supplemental Executive Retirement Plan (the “SERP”) for certain current and former employees that entitles a participating employee to receive payments from the Company following retirement based on the employee’s years of service and final average earnings (as defined in the SERP). Under the SERP, the employees can elect early retirement with a corresponding reduction in benefits. The Company also has individual deferred compensation agreements with certain former employees that entitle those employees to receive payments from the Company following retirement, generally for the duration of their lives. The Company maintains life insurance policies with a cash surrender value of $ 42.3 million at December 28, 2024 and $ 48.3 million at December 30, 2023 recognized as other assets on the consolidated balance sheets that are intended to partially fund deferred compensation benefits under the SERP and deferred compensation agreements. +The Company has two defined contribution 401(k) plans covering substantially all domestic employees that provide for discretionary Company contributions based on the amount of participant deferrals. The Company recognized expense for its contributions to the defined contribution plans of $ 4.0 million, $ 4.9 million and $ 5.6 million in fiscal years 2024, 2023 and 2022, respectively. +The Company also has certain defined contribution plans at foreign subsidiaries. Contributions to these plans were $ 1.4 million, $ 1.6 million and $ 1.5 million in fiscal years 2024, 2023 and 2022, respectively. The Company also has a benefit plan at a +58 +foreign location that provides for retirement benefits based on years of service. The obligation recorded under this plan was $ 0.1 million at December 28, 2024 and $ 0.6 million at December 30, 2023 and was recognized as a deferred compensation liability on the consolidated balance sheets. +The following summarizes the status of and changes in the Company’s assets and related obligations for its pension plans (which include the Company’s defined benefit pension plans and the SERP) for the fiscal years 2024 and 2023: +Fiscal Year +(In millions) 2024 2023 +Change in projected benefit obligations: +Projected benefit obligations at beginning of the year +$ 345.2 $ 328.2 +Service cost pertaining to benefits earned during the year +2.8 3.1 +Interest cost on projected benefit obligations +17.8 17.8 +Actuarial loss (gain) ( 22.3 ) 15.7 +Benefits paid to plan participants +( 31.0 ) ( 17.5 ) +Curtailment +— ( 2.1 ) +Settlement +( 9.1 ) — +Projected benefit obligations at end of the year +$ 303.4 $ 345.2 +Change in fair value of pension assets: +Fair value of pension assets at beginning of the year +$ 262.7 $ 251.4 +Actual return on plan assets 1.2 24.7 +Company contributions - SERP +4.1 3.9 +Benefits paid to plan participants +( 31.0 ) ( 17.3 ) +Settlement +( 9.1 ) — +Fair value of pension assets at end of the year +$ 227.9 $ 262.7 +Funded status +$ ( 75.5 ) $ ( 82.5 ) +Amounts recognized in the consolidated balance sheets: +Current liabilities +$ ( 4.1 ) $ ( 4.1 ) +Accrued pension liabilities ( 71.4 ) ( 78.4 ) +Funded status of qualified defined benefit plans and SERP $ ( 75.5 ) $ ( 82.5 ) +Unrecognized net actuarial loss recognized in accumulated other comprehensive income was $ 7.6 million and $ 10.7 million, and amounts net of tax were $ 6.3 million and $ 8.7 million, as of December 28, 2024 and December 30, 2023, respectively. The accumulated benefit obligations for all defined benefit pension plans and the SERP were $ 294.0 million at December 28, 2024 and $ 334.7 million at December 30, 2023. The decrease in benefit obligation for fiscal 2024 was the result of benefits paid to plan participants and actuarial gains caused by changes to the discount rate. The actuarial loss included in accumulated other comprehensive loss and expected to be recognized in net periodic pension income during fiscal 2025 is $ 1.7 million. +The following is a summary of net pension and SERP expense recognized by the Company: +Fiscal Year +(In millions) 2024 2023 2022 +Service cost pertaining to benefits earned during the year $ 2.8 $ 3.1 $ 5.3 +Interest cost on projected benefit obligations 17.8 17.8 13.2 +Expected return on pension assets ( 19.6 ) ( 18.5 ) ( 20.5 ) +Net amortization loss (gain) ( 1.7 ) ( 0.7 ) 11.3 +Curtailment — ( 1.0 ) — +Settlement 0.9 — — +Net pension expense $ 0.2 $ 0.7 $ 9.3 +Less: SERP expense 4.1 3.9 3.8 +Qualified defined benefit pension plans expense (income) $ ( 3.9 ) $ ( 3.2 ) $ 5.5 +The non-service cost components of net pension expense is recorded in the Other expense (income), net line item on the consolidated statements of operations and comprehensive income. +59 +The weighted-average actuarial assumptions used to determine the benefit obligation amounts and the net periodic benefit cost for the Company’s pension and post-retirement plans are as follows: +Fiscal Year +2024 2023 +Weighted-average assumptions used to determine benefit obligations at fiscal year-end: +Discount rate +5.75 % 5.30 % +Rate of compensation increase - pension +4.31 % 4.09 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Weighted average assumptions used to determine net periodic benefit cost for the years ended: +Discount rate +5.30 % 5.56 % +Expected long-term rate of return on plan assets +6.96 % 6.88 % +Rate of compensation increase - pension +4.09 % 4.13 % +Rate of compensation increase - SERP +7.00 % 7.00 % +Unrecognized net actuarial losses exceeding certain corridors are amortized over one of two amortization periods, based on each plan's election. The amortization period is either a five-year period, unless the minimum amortization method based on average remaining service periods produces a higher amortization; or, over the average remaining life expectancy of participants expected to receive benefits. The Company utilizes a bond matching calculation to determine the discount rate. A hypothetical bond portfolio is created based on a presumed purchase of high-quality corporate bonds with maturities that match the plan’s expected future cash outflows. The discount rate is the resulting yield of the hypothetical bond portfolio. The discount rate is used in the calculation of the year-end pension liability and the service and interest cost for the subsequent year. +The long-term rate of return is based on overall market expectations for a balanced portfolio with an asset mix similar to the Company’s, utilizing historic returns for broad market and fixed income indices. The Company’s investment policy for plan assets uses a blended approach of U.S. and foreign equities combined with U.S. fixed income investments. The target investment allocations as of December 28, 2024 were 44 % in equity securities and 56 % in fixed income securities. Within the equity and fixed income classifications, the investments are diversified. The Company’s asset allocations by asset category and fair value measurement are as follows: +December 28, 2024 December 30, 2023 +(In millions) Total % of Total Total % of Total +Equity securities $ 104.8 +1 +46.0 % $ 122.7 +1 +46.7 % +Fixed income securities 79.6 +1 +34.9 % 85.8 +1 +32.7 % +Cash 41.9 18.4 % 52.4 19.9 % +Other 1.6 +2 +0.7 % 1.8 +2 +0.7 % +Fair value of plan assets $ 227.9 100.0 % $ 262.7 100.0 % +1 In accordance with ASC 820, Fair Value Measurement (“ASC 820”), certain investments are measured at fair value using the net asset value per share as a practical expedient. These assets have not been classified in the fair value hierarchy. +2 In accordance with ASC 820, investments have been measured using valuation techniques in which one or more significant inputs are unobservable (Level 3). See Note 1 for additional information. +The Company does not expect to make any contributions to its qualified defined benefit pension plans in fiscal 2025 and expects to make $ 4.1 million in contributions to the SERP in fiscal 2025. +Expected benefit payments for the fiscal years subsequent to December 28, 2024 are as follows: +(In millions) 2025 2026 2027 2028 2029 2030-2034 +Expected benefit payments $ 19.7 $ 20.2 $ 20.6 $ 20.9 $ 21.1 $ 108.6 +60 +14. INCOME TAXES +The geographic components of earnings (loss) before income taxes are as follows: +Fiscal Year +(In millions) 2024 2023 2022 +United States $ 13.8 $ ( 115.2 ) $ ( 94.6 ) +Foreign 47.8 ( 19.0 ) ( 158.3 ) +Earnings (loss) before income taxes $ 61.6 $ ( 134.2 ) $ ( 252.9 ) +The provisions for income tax expense (benefit) consist of the following: +Fiscal Year +(In millions) 2024 2023 2022 +Current expense: +Federal $ 10.1 $ ( 0.6 ) $ 22.7 +State 0.2 ( 1.7 ) 4.0 +Foreign 3.4 1.3 28.2 +Deferred expense (benefit): +Federal ( 3.9 ) ( 88.5 ) ( 52.9 ) +State 0.2 0.1 ( 4.9 ) +Foreign 0.1 ( 5.6 ) ( 60.9 ) +Income tax expense (benefit) $ 10.1 $ ( 95.0 ) $ ( 63.8 ) +A reconciliation of the Company’s total income tax expense and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows: +Fiscal Year +(In millions) 2024 2023 2022 +Income taxes at U.S. statutory rate of 21% $ 13.0 $ ( 28.2 ) $ ( 53.1 ) +State income taxes, net of federal income tax ( 3.1 ) ( 2.0 ) ( 2.3 ) +Foreign earnings taxed at rates different from the U.S. statutory rate: +Hong Kong ( 6.3 ) ( 7.3 ) ( 14.2 ) +Italy 0.1 ( 2.5 ) 0.3 +United Kingdom 0.2 2.3 ( 1.1 ) +Other 2.1 3.9 2.9 +Adjustments for uncertain tax positions ( 0.8 ) ( 1.3 ) ( 0.9 ) +Change in valuation allowance 0.5 29.0 2.1 +Tax impact of impairment in foreign jurisdiction — — 3.0 +Global Intangible Low Tax Income tax — 1.5 3.8 +Foreign Derived Intangible Income tax benefit — — ( 8.2 ) +Non-deductible executive compensation 1.4 ( 0.8 ) 3.3 +Permanent adjustments related to employee share based compensation 2.2 4.2 1.6 +Permanent adjustment related to goodwill divested — 4.3 — +Capital loss from sale of subsidiary and changes to capital loss 1.6 ( 95.7 ) — +Permanent adjustments and non-deductible expenses ( 0.1 ) ( 1.2 ) ( 1.4 ) +Other ( 0.7 ) ( 1.2 ) 0.4 +Income tax expense (benefit) $ 10.1 $ ( 95.0 ) $ ( 63.8 ) +61 +Significant components of the Company’s deferred income tax assets and liabilities are as follows: +(In millions) December 28, +2024 December 30, +2023 +Deferred income tax assets: +Accounts receivable and inventory valuation allowances $ 2.0 $ 16.0 +Deferred compensation accruals 6.0 6.1 +Accrued pension expense 17.9 19.7 +Stock-based compensation 5.8 7.0 +Net operating loss and foreign tax credit carryforwards 75.8 56.6 +Capital loss carryforwards 23.7 60.4 +Tenant lease expenses 9.3 10.6 +Environmental reserve 10.9 14.8 +Other 9.3 10.0 +Total gross deferred income tax assets 160.7 201.2 +Less valuation allowance ( 56.2 ) ( 55.6 ) +Net deferred income tax assets 104.5 145.6 +Deferred income tax liabilities: +Intangible assets ( 30.5 ) ( 48.9 ) +Tax over book depreciation and amortization ( 3.2 ) ( 3.4 ) +Other ( 6.2 ) ( 3.8 ) +Total deferred income tax liabilities ( 39.9 ) ( 56.1 ) +Net deferred income tax asset (liabilities) $ 64.6 $ 89.5 +The valuation allowance for deferred income tax assets as of December 28, 2024 and December 30, 2023 was $ 56.2 million and $ 55.6 million, respectively. The net increase in the total valuation allowance during fiscal 2024 was $ 0.6 million. The valuation allowance for both years is primarily related to U.S. state and local net operating loss carryforwards as well as a valuation allowance against state deferred tax assets for certain U.S. legal entities, U.S. federal capital loss carryforwards, foreign net operating loss carryforwards and tax credit carryforwards in foreign jurisdictions. The ultimate realization of the deferred tax assets depends on the generation of future taxable income in foreign jurisdictions as well as state and local tax jurisdictions, and capital gains in the U.S. tax jurisdiction. The current year change in the valuation allowance results in a decrease against the state deferred tax assets of $ 0.4 million, an increase related to state net operating loss carryforward of $ 3.9 million, a decrease related to U.S. federal capital loss carryforward of $ 0.4 million, and a net decrease relating to the foreign net operating losses and foreign tax credits and other deferred tax assets of $ 2.5 million. +At December 28, 2024, the Company had foreign net operating loss carryforwards of $ 33.3 million, which have expirations ranging from 2025 to an unlimited term during which they are available to offset future foreign taxable income. The Company had U.S. federal capital loss carryforwards, federal net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 103.5 million, $ 44.1 million, and $ 107.9 million respectively, which have expirations ranging from 2029 to an unlimited term during which they are available to offset future U.S. federal taxable income. The Company had state net operating loss carryforwards and Internal Revenue Code section 163(j) interest expense carryforwards of $ 302.8 million and $ 114.6 million respectively, which have expirations ranging from 2025 to an unlimited term during which they are available to offset future state taxable income. The Company also had tax credit carryforwards in foreign jurisdictions of $ 2.6 million, which are available for an unlimited carryforward period to offset future foreign taxes. +The following table summarizes the activity related to the Company’s unrecognized tax benefits: +Fiscal Year +(In millions) 2024 2023 +Unrecognized tax benefits at beginning of the year $ 2.6 $ 9.0 +Increases related to current year tax positions 0.2 0.3 +Decreases related to prior year positions — ( 5.1 ) +Decreases relating to settlements with taxing authorities ( 0.7 ) ( 0.7 ) +Decrease due to lapse of statute ( 0.5 ) ( 0.9 ) +Unrecognized tax benefits at end of the year $ 1.6 $ 2.6 +62 +The portion of the unrecognized tax benefits that, if recognized currently, would reduce the annual effective tax rate was $ 1.6 million and $ 2.6 million as of December 28, 2024 and December 30, 2023, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Interest accrued related to unrecognized tax benefits was $ 0.3 million and $ 0.5 million as of December 28, 2024 and December 30, 2023, respectively. +The Company is subject to periodic audits by domestic and foreign tax authorities. Currently, the Company is undergoing routine periodic audits in both domestic and foreign tax jurisdictions. It is reasonably possible that the amounts of unrecognized tax benefits could change in the next 12 months as a result of the audits. However, any payment of tax is not expected to be material to the consolidated financial statements. For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2020. +The Company intends to repatriate cash held in foreign jurisdictions and as such has recorded a deferred tax liability related to additional state taxes and foreign withholding taxes on the future dividends received in the U.S. from the foreign subsidiaries of $ 1.5 million and $ 1.1 million for fiscal years 2024 and 2023. The Company intends to permanently reinvest all non-cash undistributed earnings outside of the U.S. and has, therefore, not established a deferred tax liability on the amount of non-cash foreign undistributed earnings of $ 37.9 million at December 28, 2024. However, if these non-cash undistributed earnings were repatriated, the Company would be required to accrue and pay applicable U.S. taxes and withholding taxes payable to various countries. It is not practicable to estimate the amount of the deferred tax liability associated with these non-cash unremitted earnings due to the complexity of the hypothetical calculation. +15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) +Accumulated other comprehensive income represents net earnings and any revenue, expenses, gains and losses that, under U.S. GAAP, are excluded from net earnings and recognized directly as a component of stockholders’ equity. +The change in accumulated other comprehensive income (loss) during fiscal years 2024 and 2023 is as follows: +(In millions) Foreign +currency +translation Derivatives Pension Total +Balance at December 31, 2022 $ ( 133.1 ) $ 1.9 $ ( 1.7 ) $ ( 132.9 ) +Other comprehensive income (loss) before reclassifications (1) +12.6 ( 4.8 ) ( 6.6 ) 1.2 +Amounts reclassified from accumulated other comprehensive income (loss) 4.2 ( 18.8 ) +(2) +( 0.7 ) +(3) +( 15.3 ) +Income tax (expense) benefit — 4.6 0.2 4.8 +Net reclassifications +4.2 ( 14.2 ) ( 0.5 ) ( 10.5 ) +Net current-period other comprehensive income (loss) (1) +16.8 ( 19.0 ) ( 7.1 ) ( 9.3 ) +Balance at December 30, 2023 $ ( 116.3 ) $ ( 17.1 ) $ ( 8.8 ) $ ( 142.2 ) +Other comprehensive income (loss) before reclassifications (1) +( 16.7 ) 12.1 3.9 ( 0.7 ) +Amounts reclassified from accumulated other comprehensive income (loss) 0.2 ( 4.9 ) +(2) +( 1.7 ) +(3) +( 6.4 ) +Income tax benefit — 1.2 0.3 1.5 +Net reclassifications +0.2 ( 3.7 ) ( 1.4 ) ( 4.9 ) +Net current-period other comprehensive income (loss) (1) +( 16.5 ) 8.4 2.5 ( 5.6 ) +Balance at December 28, 2024 $ ( 132.8 ) $ ( 8.7 ) $ ( 6.3 ) $ ( 147.8 ) +(1) Other comprehensive income (loss) is reported net of taxes and noncontrolling interest. +(2) Amounts related to foreign currency derivatives used to manage the volatility associated with inventory purchases in various currencies and deemed to be highly effective are included in cost of goods sold. Amounts related to foreign currency derivatives that are no longer deemed to be highly effective are included in other income. Amounts related to interest rate swaps are included in interest expense. +(3) Amounts reclassified are included in the computation of net pension expense. +63 +16. FAIR VALUE MEASUREMENTS +Recurring Fair Value Measurements +The following table sets forth financial assets and liabilities measured at fair value in the consolidated balance sheets and the respective pricing levels to which the fair value measurements are classified within the fair value hierarchy. +Fair Value Measurements +Quoted Prices With Other Observable Inputs (Level 2) +(In millions) December 28, 2024 December 30, 2023 +Financial assets: +Derivatives $ 9.3 $ 1.8 +Financial liabilities: +Derivatives $ ( 0.7 ) $ ( 5.1 ) +The fair value of foreign currency forward exchange contracts represents the estimated receipts or payments necessary to terminate the contracts. +Nonrecurring Fair Value Measurements +Indefinite-lived intangible assets and goodwill are tested annually, or if a triggering event occurs that indicates an impairment loss may have been incurred, using fair value measurements with unobservable inputs (Level 3). In the third quarter of 2023, based on the results of the impairment testing, the Company recognized impairment charges of $ 38.3 million to the Sperry ® trade name. Refer to Note 4, “Goodwill and Other Intangible Assets” for additional discussion on the Sperry ® trade name impairment . +Fair Value Disclosures +The Company’s financial instruments that are not recorded at fair value consist of cash and cash equivalents, accounts and notes receivable, accounts payable, borrowings under revolving credit agreements and other short-term and long-term debt. The carrying amount of these financial instruments is historical cost, which approximates fair value, except for the debt. The carrying value and the fair value of the Company’s debt are as follows: +(In millions) December 28, 2024 December 30, 2023 +Carrying value $ 648.0 $ 920.8 +Fair value 587.0 813.3 +The fair value of the fixed rate debt was based on third-party quotes (Level 2). The fair value of the variable rate debt was calculated by discounting the future cash flows to its present value using a discount rate based on the risk-free rate of the same maturity (Level 3). +17. LITIGATION AND CONTINGENCIES +Litigation +The Company operated a leather tannery in Rockford, Michigan from the early 1900s through 2009 (the “Tannery”). The Company also owns a parcel on House Street in Plainfield Township that the Company used for the disposal of Tannery byproducts until about 1970 (the "House Street" site). Beginning in the late 1950s, the Company used 3M Company’s Scotchgard™ in its processing of certain leathers at the Tannery. Until 2002 when 3M Company changed its Scotchgard™ formula, Tannery byproducts disposed of by the Company at the House Street site and other locations may have contained PFOA and/or PFOS, two chemicals in the family of compounds known as per- and polyfluoroalkyl substances (together, “PFAS”). PFOA and PFOS help provide non-stick, stain-resistant, and water-resistant qualities, and were used for many decades in commercial products like firefighting foams and metal plating, and in common consumer items like food wrappers, microwave popcorn bags, pizza boxes, Teflon™, carpets and Scotchgard™. +In May 2016, the Environmental Protection Agency (“EPA”) announced a lifetime health advisory level of 70 parts per trillion (“ppt”) combined for PFOA and PFOS, which the EPA reduced in June 2022 to 0.004 ppt and 0.02 ppt for PFOA and PFOS, respectively. In January 2018, the Michigan Department of Environmental Quality (“MDEQ”, now known as the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”)) enacted a drinking water criterion of 70 ppt combined for PFOA and PFOS, which set an official state standard for acceptable concentrations of these contaminants in groundwater used for drinking water purposes. On August 3, 2020, Michigan changed the standards for PFOA and PFOS in drinking water to 8 and 16 ppt, respectively, and set standards for four other PFAS substances. +64 +Civil and Regulatory Actions of EGLE and EPA +On January 10, 2018, EGLE filed a civil action against the Company in the U.S. District Court for the Western District of Michigan under the federal Resource Conservation and Recovery Act of 1976 (“RCRA”) and Parts 201 and 31 of the Michigan Natural Resources and Environmental Protection Act (“NREPA”) alleging that the Company’s past and present handling, storage, treatment, transportation and/or disposal of solid waste at the Company’s properties has resulted in releases of PFAS at levels exceeding applicable Michigan cleanup criteria for PFOA and PFOS (the "EGLE Action"). Plainfield and Algoma Townships intervened in the EGLE Action alleging claims under RCRA, NREPA, the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and common law nuisance. +On February 3, 2020, the parties entered into a consent decree resolving the EGLE Action, which was approved by U.S. District Judge Janet T. Neff on February 19, 2020 (the “Consent Decree”). Under the Consent Decree, the Company agreed to pay for an extension of Plainfield Township’s municipal water system to more than 1,000 properties in Plainfield and Algoma Townships, subject to an aggregate cap of $69.5 million. The Company also agreed to continue maintaining water filters for certain homeowners, resample certain residential wells for PFAS, continue remediation at the Company’s Tannery property and House Street site, and conduct further investigations and monitoring to assess the presence of PFAS in area groundwater. The Company’s activities under the Consent Decree are not materially impacted by either the drinking water standards that became effective on August 3, 2020, or the EPA’s revised advisory levels issued in June 2022. +On December 19, 2018, the Company filed a third-party complaint against 3M Company seeking, among other things, recovery of the Company’s remediation and other costs incurred in defense of the EGLE Action ("the 3M Action"). On June 20, 2019, the 3M Company filed a counterclaim against the Company in response to the 3M Action, seeking, among other things, contractual and common law indemnity and contribution under CERCLA and Part 201 of NREPA. On February 20, 2020, the Company and 3M Company entered into a settlement agreement resolving the 3M Action, under which 3M Company paid the Company a lump sum amount of $ 55.0 million during the first quarter of 2020. +On January 10, 2018, the EPA entered a Unilateral Administrative Order (the “Order”) under Section 106(a) of CERCLA, 42 U.S.C. § 9606(a) with an effective date of February 1, 2018. The Order pertained to specified removal actions at the Company's Tannery and House Street sites, including certain time critical removal actions subsequently identified in an April 29, 2019 letter from the EPA, to abate the actual or threatened release of hazardous substances at or from the sites. On October 28, 2019, the EPA and the Company entered into an Administrative Settlement and Order on Consent (“AOC”) that supersedes the Order and addresses the agreed-upon removal actions outlined in the Order. The Company has completed the activities required by the AOC. +The Company discusses its reserve for remediation costs in the environmental liabilities section below. +Individual and Class Action Litigation +Beginning in late 2017, individual lawsuits and three putative class action lawsuits were filed against the Company that raise a variety of claims, including claims related to property, remediation, and human health effects. The three putative class action lawsuits were subsequently refiled in the U.S. District Court for the Western District of Michigan as a single consolidated putative class action lawsuit. 3M Company has been named as a co-defendant in the individual lawsuits and consolidated putative class action lawsuit. In addition, the current owner of a former landfill and gravel mining operation sued the Company seeking damages and cost recovery for property damage allegedly caused by the Company’s disposal of tannery waste containing PFAS. The owner of another former landfill filed notice threatening suit and sent a demand letter to the Company seeking recovery for damages allegedly caused by the Company’s disposal of tannery waste containing PFAS (this notice, the former landfill and gravel mining suit and the individual lawsuits and putative class action, collectively, the “Litigation Matters”). +On January 11, 2022, the Company and 3M Company entered into a master settlement agreement with the law firm representing certain of the plaintiffs in the individual lawsuits included in the Litigation Matters, and each of these plaintiffs subsequently agreed to participate in the settlement. These plaintiffs’ lawsuits were dismissed with prejudice on or around April 25, 2022. +On December 9, 2021, the Company and 3M Company reached a settlement in principle to resolve certain of the remaining individual lawsuits included in the Litigation Matters, and the parties entered into definitive settlement agreements in March 2022. These plaintiffs’ lawsuits were dismissed with prejudice on June 14, 2022. The last remaining individual action was dismissed without prejudice on June 24, 2022. +65 +In addition, in September 2022, the parties to the putative class action filed a motion for preliminary approval of a proposed class action settlement seeking to resolve the putative class action plaintiffs’ claims. On March 29, 2023, the court presiding over the putative class action granted final approval of the proposed settlement and dismissed the lawsuit with prejudice. +The last remaining Litigation Matter, the lawsuit filed by the current owner of a former landfill and gravel mining operations, was pending in Michigan state court but has been administratively stayed by the Court. +For certain of the Litigation Matters described above, and as a result of developments during the 2024 fiscal year, the Company increased its accrual by $ 6.0 million. The Company made related payments of $ 1.0 million in connection with the Litigation Matters described above during fiscal year 2024. As of December 28, 2024, the Company had recorded liabilities of $ 10.1 million for certain of the Litigation Matters described above which are recorded as other accrued liabilities and other liabilities in the consolidated balance sheets. +In December 2018, the Company filed a lawsuit against certain of its historic liability insurers, seeking to compel them to provide a defense against the Litigation Matters on the Company's behalf and coverage for remediation efforts undertaken by, and indemnity provided by, the Company. Following the last recovery payment recieved, the lawsuit was dismissed in December 2024. The Company recognized certain recoveries from legacy insurance policies in 2024 and 2023. +Other Litigation +The Company is also involved in litigation incidental to its business and is a party to legal actions and claims, including, but not limited to, those related to employment, intellectual property, and consumer related matters. Some of the legal proceedings include claims for compensatory as well as punitive damages. While the final outcome of these matters cannot be predicted with certainty, considering, among other things, the meritorious legal defenses available to the Company and reserves for liabilities that the Company has recorded, along with applicable insurance, it is management’s opinion that the outcome of these items are not expected to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. +Environmental Liabilities +The following is a summary of the activity with respect to the environmental remediation reserve established by the Company: +Fiscal Year +(In millions) 2024 2023 +Remediation liability at beginning of the year +$ 57.9 $ 74.1 +Changes in estimate +7.1 ( 5.8 ) +Amounts paid +( 25.3 ) ( 10.4 ) +Remediation liability at the end of the year +$ 39.7 $ 57.9 +The reserve balance as of December 28, 2024 includes $ 19.4 million that is expected to be paid within the next twelve months and is recorded as a current obligation in other accrued liabilities, with the remaining $ 20.3 million expected to be paid over the course of up to 25 years, recorded in other liabilities . +The Company's remediation activity at the Tannery property, House Street site and other relevant operations or disposal sites is ongoing. Although the Consent Decree has made near-term costs more clear, it is difficult to estimate the long-term cost of environmental compliance and remediation given the uncertainties regarding the interpretation and enforcement of applicable environmental laws and regulations, the extent of environmental contamination and the existence of alternative cleanup methods. Future developments may occur that could materially change the Company’s current cost estimates, including, but not limited to: (i) changes in the information available regarding the environmental impact of the Company’s operations and products; (ii) changes in environmental regulations, changes in permissible levels of specific compounds in drinking water sources, or changes in enforcement theories and policies, including efforts to recover natural resource damages; (iii) new and evolving analytical and remediation techniques; (iv) changes to the form of remediation; (v) success in allocating liability to other potentially responsible parties; and (vi) the financial viability of other potentially responsible parties and third-party indemnitors. For locations at which remediation activity is largely ongoing, the Company cannot estimate a possible loss or range of loss in excess of the associated established reserves for the reasons described above. The Company adjusts recorded liabilities as further information develops or circumstances change. +66 +Minimum Royalties and Advertising Commitments +The Company has future minimum royalty and advertising obligations due under the terms of certain licenses held by the Company. These minimum future obligations for the fiscal years subsequent to December 28, 2024 are as follows: +(In millions) 2025 2026 2027 2028 2029 Thereafter +Minimum royalties $ 1.1 $ 1.2 $ 1.3 $ 1.4 $ 1.5 $ — +Minimum advertising 3.0 3.1 3.2 3.3 — — +Minimum royalties are based on both fixed obligations and assumptions regarding the Consumer Price Index. Royalty obligations in excess of minimum requirements are based upon future sales levels. In accordance with these agreements, the Company incurred royalty expense of $ 1.4 million, $ 1.5 million and $ 2.3 million for fiscal years 2024, 2023 and 2022, respectively. +The terms of certain license agreements also require the Company to make advertising expenditures based on the level of sales of the licensed products. In accordance with these agreements, the Company incurred advertising expense of $ 5.9 million, $ 6.9 million and $ 6.5 million for fiscal years 2024, 2023 and 2022, respectively. +18. BUSINESS SEGMENTS +The Company’s portfolio of brands is organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; and +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +The Company's operating segments are the Active Group, Work Group, and Sweaty Betty ® . Sweaty Betty ® and the Active Group were evaluated and combined into one reportable segment because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance. The Company's chief operating decision maker is the President and Chief Executive Officer. The chief operating decision maker uses segment operating profit to assess the performance of and to allocate resources to each segment. +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. Other consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party licensees and distributors; and revenue from the Company’s direct-to-consumer businesses. The Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +Company management uses various financial measures to evaluate the performance of the reportable segments. The following is a summary of certain key financial measures for the respective fiscal periods indicated. The significant expense categories and amounts align with the segment-level information that is regularly provided to the Company's chief operating decision maker. +67 +2024 +(In millions) Active Group Work Group Other Corporate Total +Revenue $ 1,246.1 $ 455.3 $ 53.6 $ — $ 1,755.0 +Cost of goods sold 674.4 295.8 13.2 ( 9.9 ) 973.5 +Selling, general and administrative expenses 386.8 90.3 9.1 194.3 680.5 +Operating income $ 184.9 $ 69.2 $ 31.3 $ ( 184.4 ) $ 101.0 +Interest expense, net 42.7 +Other income, net ( 3.3 ) +Earnings before income taxes $ 61.6 +Depreciation and amortization expense: $ 6.7 $ 0.4 $ 1.9 $ 17.2 $ 26.2 +Capital expenditures: $ 5.6 $ — $ 1.8 $ 12.8 $ 20.2 +Total Assets: $ 1,011.6 $ 266.2 $ 79.4 $ 311.6 $ 1,668.8 +Goodwill: $ 315.4 $ 60.2 $ 49.0 $ — $ 424.6 +2023 +(In millions) Active Group Work Group Other Corporate Total +Revenue $ 1,439.1 $ 480.6 $ 323.2 $ — $ 2,242.9 +Cost of goods sold 853.0 321.1 191.3 5.0 1,370.4 +Selling, general and administrative expenses 445.8 101.4 99.1 294.4 940.7 +Operating income $ 140.3 $ 58.1 $ 32.8 $ ( 299.4 ) $ ( 68.2 ) +Interest expense, net 63.5 +Other expense, net 2.5 +Loss before income taxes $ ( 134.2 ) +Depreciation and amortization expense: $ 10.7 $ 0.4 $ 2.9 $ 21.1 $ 35.1 +Capital expenditures: $ 9.7 $ 0.1 $ 0.1 $ 4.7 $ 14.6 +Total Assets: $ 1,183.9 $ 288.4 $ 250.8 $ 339.7 $ 2,062.8 +Goodwill: $ 317.7 $ 60.3 $ 49.1 $ — $ 427.1 +2022 +(In millions) Active Group Work Group Other Corporate Total +Revenue $ 1,570.2 $ 590.5 $ 524.1 $ — $ 2,684.8 +Cost of goods sold 899.1 383.9 314.2 17.2 1,614.4 +Selling, general and administrative expenses 472.7 104.1 150.0 552.0 1,278.8 +Segment operating profit $ 198.4 $ 102.5 $ 59.9 $ ( 569.2 ) $ ( 208.4 ) +Interest expense, net 47.3 +Other income, net ( 2.8 ) +Loss before income taxes $ ( 252.9 ) +Depreciation and amortization expense: $ 8.1 $ 0.3 $ 3.4 $ 22.8 $ 34.6 +Capital expenditures: $ 18.9 $ 0.4 $ 5.2 $ 12.0 $ 36.5 +68 +Geographic dispersion of revenue from external customers, based on shipping destination is as follows: +Fiscal Year +(In millions) 2024 2023 2022 +United States $ 893.4 $ 1,217.9 $ 1,563.1 +Foreign: +Europe, Middle East and Africa 529.6 540.8 602.5 +Asia Pacific 150.9 253.2 245.7 +Canada 82.6 107.1 126.8 +Latin America 98.5 123.9 146.7 +Total from foreign territories 861.6 1,025.0 1,121.7 +Total revenue $ 1,755.0 $ 2,242.9 $ 2,684.8 +The location of the Company’s tangible long-lived assets, which comprises property, plant and equipment and lease right-of-use assets, is as follows: +(In millions) December 28, +2024 December 30, +2023 December 31, +2022 +United States $ 117.6 $ 131.9 $ 222.3 +Foreign countries 74.2 82.6 88.6 +Total $ 191.8 $ 214.5 $ 310.9 +The Company does not believe that it is dependent upon any single customer because no customer accounts for more than 10% of consolidated revenue in any year. +During fiscal 2024, the Company sourced 100 % of its footwear products and apparel and accessories from third-party suppliers, located primarily in the Asia Pacific region. While changes in suppliers could cause delays in manufacturing and a possible loss of sales, management believes that other suppliers could provide similar products on comparable terms. +19. VARIABLE INTEREST ENTITIES AND RELATED PARTY TRANSACTIONS +Assets and Liabilities of Consolidated VIEs +The Company had joint ventures, which were divested effective January 1, 2024, that sourced and marketed the Company’s footwear and apparel products in China. Based upon the criteria set forth in FASB ASC 810, Consolidation , the Company had determined two of the consolidated joint ventures were variable interest entities (VIEs) of which the Company was the primary beneficiary and, as a result, the Company consolidated these VIEs. The primary beneficiary determination was based on the relationship between the Company and the VIE, including contractual agreements between the Company and the VIE. The Company had determined that two of the VIEs that were consolidated met the criteria to be classified as held for sale as of year end 2023. Refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +Specifically, the Company had the power to direct the activities that were considered most significant to the entities’ performance and the Company had the obligation to absorb losses and the right to receive benefits that were significant to the entities. The other equity holder’s interests were reflected in “net earnings (loss) attributable to noncontrolling interests” in the Consolidated Statement of Operations and “Noncontrolling interest” in the Consolidated Balance Sheets. Assets held by the VIEs were only available to settle obligations of the respective entities. Holders of liabilities of these VIEs did not have recourse to the Company. +The following is a summary of these VIE’s assets and liabilities included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2023 +Assets held for sale 51.6 +Liabilities held for sale 15.4 +Nonconsolidated VIEs +The Company also had two joint ventures, which were divested effective January 1, 2024, that were VIEs that were not consolidated as the Company did not have the power to direct the most significant activities that impact the VIEs' economic +69 +performance. The two VIEs distributed footwear and apparel products in the Asia Pacific region. The Company had determined that the VIEs that were not consolidated met the criteria to be classified as held for sale as of year-end fiscal 2023. Refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +Related Party Transactions +In the normal course of business, the Company entered into transactions with related party equity affiliates. Related party transactions consisted of the sale of goods, made at arm’s length, and other arrangements. For the fiscal year ended December 30, 2023 the Company recognized net sales to equity affiliates totaling $ 66.5 million. For the fiscal year ended December 28, 2024, the Company did not recognize any sales to equity affiliates. +The following table summarizes related party transactions included in the consolidated balance sheets. +Fiscal Year +(In millions) 2023 +Accounts receivable due from related parties $ 15.4 +Long term liabilities due to related parties 1.4 +20. DIVESTITURES AND ASSETS AND LIABILITIES HELD FOR SALE +Sale-Leaseback of Courtland Drive Facility +On September 17, 2024, the Company completed a sale and leaseback transaction with an independent third party for the land, building and related fixed assets of the Company’s Courtland Drive facility located in Rockford, Michigan for a sale price of $ 10.5 million. The independent third party leased back the facility to the Company under a seven-year lease agreement, which includes a five-year renewal option. The transaction qualifies for sales recognition under the sale leaseback accounting requirements, and the Company recorded a gain of $ 8.5 million in the third quarter of 2024. +Divestiture of Sperry ® Business +On January 10, 2024, the Company entered into a Purchase Agreement with ABG Intermediate Holdings 2 LLC, an affiliate of Authentic Brands Group LLC. (the "ABG Buyer"), pursuant to which the ABG Buyer agreed to purchase all of the outstanding equity of certain subsidiaries of the Company that own or hold for use intellectual property used by the Company exclusively in the footwear, apparel, and accessories business conducted by the Company under the Sperry ® brand. In addition, on January 10, 2024 the Company entered into an Inventory Purchase Agreement with Aldo U.S. Inc., an affiliate of the Aldo Group (the "Aldo Buyer"), pursuant to which the Aldo Buyer agreed to purchase certain inventory and other assets of the Sperry ® business, and to assume certain contracts of the Sperry ® business, including Sperry ® retail store leases. The sale was effective January 10, 2024, in accordance with the terms and conditions of the Purchase Agreement. +The aggregate purchase price under these two purchase agreements was $97.4 million in cash. As of December 30, 2023, the Company recognized an impairment charge of $ 95.0 million which included $ 6.0 million for disposal costs. Also during fiscal 2023, the Company recorded an impairment charge of $ 11.0 million related to assets that will not convey as part of the Sperry ® sale transactions and are not expected to be used within the Company’s other businesses. These charges are reported within the impairment of long-lived assets line on the consolidated statements of operations. In determining the amount of the impairment loss for the assets of this transaction during the fourth quarter of 2023, the Company included $ 1.0 million of accumulated foreign currency translation gains, which were classified within accumulated other comprehensive income (“AOCI”). +The Company determined that the divestiture of the Sperry ® business did not represent a strategic shift that had or will have a major effect on the consolidated results of operations, and therefore results of this business were not classified as discontinued operations. +Divestiture of Merrell ® and Saucony ® China Joint Venture Entities +On December 17, 2023, the Company and Xtep entered into a Purchase Agreement pursuant to which Xtep agreed to purchase the Company’s equity interests in the Merrell and Saucony joint venture entities that sourced and marketed Merrell ® and Saucony ® footwear and apparel products in China (Saucony Brand Operations Ltd., Saucony Distribution Operations Ltd., Merrell Brand Operations Ltd. and Merrell Distribution Operations Ltd.), transitioning the business from a joint venture model to a license and distribution rights model under which Xtep will exclusively carry out the development, marketing and distribution of footwear, apparel and accessories for the Saucony and Merrell brands in China. The sale was effective January 1, 2024, in accordance with the terms and conditions of the Purchase Agreement and the purchase price was $ 22.0 million in cash. As of December 30, 2023, the Company recognized an impairment charge of $ 1.8 million. In determining the amount of the +70 +impairment loss for the assets of this transaction during the fourth quarter of 2023, the Company included $ 0.8 million of accumulated foreign currency translation losses, which were classified within AOCI. +Divestiture of Asia-based Leathers Business +On December 14, 2023, the Company completed the sale of its Asia-based performance leathers business to Interhides Public Company Limited, a current materials vendor of the Company. The Company received $ 8.2 million in cash for the sale. The assets sold, which were included in the Other segment category, consist of $ 8.2 million in inventory. +Sale-Leaseback of Louisville Distribution Facility +On December 28, 2023, the Company completed a sale and leaseback transaction with an independent third party for the land, building and related fixed assets of the Company's distribution center located in Louisville, Kentucky for a sale price of $ 23.5 million. The distribution center was leased back to the Company under a two-year lease agreement, which includes a one year renewal option. The transaction qualifies for sales recognition under the sale leaseback accounting requirements and the Company recorded a gain of $ 12.6 million in the fourth quarter of 2023. +Divestiture of Hush Puppies ® intellectual property in China, Hong Kong, and Macau +On September 1, 2023, the Company entered into an asset purchase agreement to sell the Hush Puppies ® trademarks, patents, copyrights and domains in China, Hong Kong and Macau to its current sublicensee, Beijing Jiaman Dress Co., Ltd. for cash of $ 58.8 million and recognized a gain on sale of $ 55.8 million in the third quarter of 2023. The gain on sale is net of transaction related fees of $ 3.0 million. The transaction closed on September 14, 2023. The Company will continue to own the Hush Puppies ® brand throughout the rest of the world. +Divestiture of U.S. Wolverine Leathers Business +On August 23, 2023, the Company completed the sale of its U.S. Wolverine Leathers business to its long-time customer, New Balance. The Company received $ 4.0 million in cash for the sale and recognized a gain on sale of $ 1.9 million. The assets sold, which were included in the Other segment category, consist of $ 2.1 million in inventory. +Divestiture of Keds ® Business +On February 7, 2023 the Company entered into an Asset Purchase Agreement with Designer Brands, Inc. (the "Buyer") pursuant to which the Buyer agreed to purchase the global Keds ® business. The sale was effective February 4, 2023, in accordance with the terms and conditions of the Asset Purchase Agreement. +The following table summarizes the net gain recognized in the first quarter of 2023 in connection with the divestiture: +(In millions) +Net proceeds $ 83.4 +Net assets disposed ( 65.9 ) +Direct costs to sell ( 1.6 ) +AOCI reclassification adjustment, foreign currency translation 4.2 +Gain on sale of business $ 20.1 +The Company determined that the divestiture of the Keds ® business did not represent a strategic shift that had or will have a major effect on the Consolidated Results of Operations, and therefore results were not classified as discontinued operations. The proceeds from the sales were used to reduce outstanding revolver borrowings. +Assets and Liabilities Held for Sale +The Sperry ® business and the Merrell ® and Saucony ® China joint venture entities met the criteria to be classified as held for sale as of December 30, 2023, and therefore the Company reclassified the related assets and liabilities as held for sale on the consolidated balance sheets as of December 30, 2023. +71 +The following is a summary of the major categories of assets and liabilities that have been classified as held for sale on the consolidated balance sheets: +(In millions) 2023 +Cash and cash equivalents $ 5.6 +Accounts receivables, net 15.4 +Inventories 83.3 +Other current assets 2.9 +Property, plant and equipment, net 3.8 +Lease right-of-use assets +7.6 +Goodwill 43.0 +Indefinite-lived intangibles 67.0 +Amortizable intangibles, net 21.0 +Other assets 7.8 +Impairment of carrying value ( 96.8 ) +Total assets held for sale 160.6 +Accounts payable 4.8 +Lease liabilities 9.0 +Accrued liabilities 9.0 +Other liabilities 1.4 +Total liabilities held for sale $ 24.2 +72 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on the Financial Statements +We have audited the accompanying consolidated balance sheets of Wolverine World Wide, Inc. and subsidiaries (the Company) as of December 28, 2024 and December 30, 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, in conformity with U.S. generally accepted accounting principles. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 20, 2025 expressed an unqualified opinion thereon. +Basis for Opinion +These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical Audit Matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +73 +Valuation of goodwill and indefinite-lived intangibles +Description of the Matter +At December 28, 2024, the carrying values of the Company’s Sweaty Betty trade name indefinite-lived intangible asset and the Sweaty Betty reporting unit goodwill were $98.4 million and $52.4 million, respectively. As discussed in Notes 1 and 4 to the consolidated financial statements, goodwill and indefinite-lived intangibles are tested for impairment at least annually. The impairment test for goodwill consists of measuring the fair value of the reporting unit and comparing it to the reporting unit’s carrying amount. The impairment test for indefinite-lived intangible assets consists of measuring the fair value of the asset and comparing it to the asset’s carrying amount. +Auditing management’s annual impairment tests for goodwill and indefinite-lived intangible assets was complex due to the significant estimation uncertainty required in determining the fair values of the Sweaty Betty reporting unit and the Sweaty Betty trade name indefinite-lived intangible asset. The significant assumptions used to estimate the fair values of the Sweaty Betty reporting unit and the Sweaty Betty trade name indefinite-lived intangible asset included the forecasted revenue growth, EBITDA margin, and discount rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions. Changes in these assumptions could have a significant impact on the fair values of the Sweaty Betty reporting unit and the Sweaty Betty trade name indefinite-lived intangible asset, the amount of any impairment charge, or both. +How We Addressed the Matter in Our Audit +We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the impairment review process. For example, we tested controls that address the risk of material misstatement relating to the valuation of the Sweaty Betty reporting unit and the Sweaty Betty trade name indefinite-lived intangible asset, including management’s review of the significant assumptions described above and the completeness and accuracy of the data used to develop such estimates. +To test the estimated fair values of the Sweaty Betty reporting unit and the Sweaty Betty trade name indefinite-lived intangible asset, our audit procedures included, among others, assessing the appropriateness of the valuation model used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the financial projections to current industry and economic trends and the historical accuracy of management’s estimates. We involved our valuation specialists to assist in our evaluation of the Company's model, valuation methodology and the discount rate. +/s/ Ernst & Young LLP +We have served as the Company’s auditor since at least 1933, but we are unable to determine the specific year. +Grand Rapids, Michigan +February 20, 2025 +74 +Report of Independent Registered Public Accounting Firm +To the Shareholders and the Board of Directors of Wolverine World Wide, Inc. +Opinion on Internal Control Over Financial Reporting +We have audited Wolverine World Wide, Inc. and subsidiaries’ internal control over financial reporting as of December 28, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Wolverine World Wide, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 28, 2024, based on the COSO criteria. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 28, 2024 and December 30, 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the fiscal years ended December 28, 2024, December 30, 2023, and December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 20, 2025 expressed an unqualified opinion thereon. +Basis for Opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. +Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Definition and Limitations of Internal Control Over Financial Reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +Because of 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/ Ernst & Young LLP +Grand Rapids, Michigan +February 20, 2025 +75 +Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure +None. +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 28, 2024, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 28, 2024. +The effectiveness of the Company’s internal control over financial reporting as of December 28, 2024 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 28, 2024 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. +Item 9B. Other Information +(c) During the quarter ended December 28, 2024, no director or Section 16 officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement or a non-rule 10b5-1 trading arrangement, in each case, as defined in Item 408(a) of Regulation S-K. +Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections +Not applicable. +PART III +Item 10. Directors, Executive Officers and Corporate Governance +The information called for by Item 10 is incorporated herein by reference to the Definitive Proxy Statement of the Company relating to the Annual Meeting of Stockholders of Wolverine World Wide, Inc. expected to be held on May 1, 2025 in sections "Election of Directors," "Corporate Governance" and "Other Compensation Policies and Practices." The Company intends to file such Definitive Proxy Statement with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. +We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct is posted on our website located at http://www.wolverineworldwide.com/investor-relations/corporate-governance/. We intend to disclose future amendments to certain provisions of the Code of Business Conduct, and waivers of the Code of Business Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver. +Item 11. Executive Compensation +The information called for by Item 11 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Compensation Discussion and Analysis". +76 +Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +The information called for by Item 12 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Securities Ownership in Officers and Directors and Certain Beneficial Owners". +Equity Compensation Plan Information +The following table provides information about the Company’s equity compensation plans as of December 28, 2024: +Plan Category (1) +Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights +(a) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights +(b) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans Excluding Securities Reflected in Column (a)) +(c) +Equity compensation plans approved by security holders +7,749,739 +(2), (3) +$ 21.74 +(4) +5,127,844 +(5) +Equity compensation plans not approved by security holders +— — — +Total 7,749,739 $ 21.74 5,127,844 +(1) Each plan for which aggregated information is provided contains customary anti-dilution provisions that are applicable in the event of a stock split, stock dividend or certain other changes in the Company’s capitalization. +(2) Includes: (i) 6,419,210 shares that have been granted as restricted stock units and performance stock units (assuming maximum number of performance stock units are earned and payable at the end of the three-year performance period) under the Stock Incentive Plan of 2016, as amended and restated and the Stock Incentive Plan of 2024, (ii) 1,179,067 stock options awarded to employees under the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and restated; and (iii) 151,462 stock options awarded to non-employee directors under the Stock Incentive Plan of 2013 and the Stock Incentive Plan of 2016, as amended and restated. Column (a) does not include stock units credited to outside directors’ fee accounts or retirement accounts under the Outside Directors’ Deferred Compensation Plan. Stock units do not have an exercise price. Each stock unit credited to a director’s fee account and retirement account under the Outside Directors’ Deferred Compensation Plan will be converted into one share of common stock upon distribution. +(3) Of this amount, 1,127 options were not exercisable as of December 28, 2024 due to vesting restrictions. +(4) Weighted average exercise price of outstanding stock options only. +(5) Comprised of: (i) 84,791 shares available for issuance under the Outside Directors’ Deferred Compensation Plan upon the retirement of the current directors or upon a change in control; and (ii) 5,043,053 shares issuable under the Stock Incentive Plan of 2024. +The Outside Directors’ Deferred Compensation Plan is a supplemental, unfunded, nonqualified deferred compensation plan for non-employee directors. Beginning in 2006, the Company began paying an annual equity retainer to non-management directors in the form of a contribution under the Outside Directors’ Deferred Compensation Plan. Non-management directors may also voluntarily elect to receive, in lieu of some or all directors’ fees, a number of stock units equal to the amount of the deferred directors’ fees divided by the fair market value of the Company’s common stock on the date of payment. These stock units are increased by a dividend equivalent based on dividends paid by the Company and the amount of stock units credited to the participating director’s fee account and retirement account. Upon distribution, the participating directors receive a number of shares of the Company’s common stock equal to the number of stock units to be distributed at that time. Distribution is triggered by termination of service as a director or by a change in control of the Company and can occur in a lump sum, in installments or on another deferred basis. A total of 312,653 shares have been issued to a trust to satisfy the Company’s obligations when distribution is triggered and are included in shares the Company reports as issued and outstanding. +The Stock Incentive Plan of 2024 is an equity-based incentive plan for officers, key employees, and directors. Such plan authorizes awards of stock options, restricted common stock, common stock, restricted stock units and/or stock appreciation rights. The Stock Incentive Plan of 2024, as amended and restated, provides that each share of restricted or unrestricted common stock and each restricted stock unit issued under the plan is counted as 1.0 share against the total number of shares authorized for issuance under the plan. The number of securities listed as remaining available in column (c) of the table assumes only stock options will be issued under the plan in the future; each stock option counts as only one share against the total number of shares authorized for issuance under the plan. The numbers provided in this footnote and in column (c) will increase to the extent that options relating to the number of shares listed in column (a) of the table or other outstanding awards (e.g., shares of restricted or unrestricted stock, restricted stock units or stock appreciation rights) previously issued under the plan are canceled, surrendered, modified, exchanged for substitutes, expire or terminate prior to exercise or vesting because the number of shares underlying any such awards will again become available for issuance under the plan under which the award was granted. +77 +Of the total number of shares available under column (c), the number of shares with respect to the following plans may be issued other than upon the exercise of an option, warrant or right outstanding as of December 28, 2024: +• Outside Directors’ Deferred Compensation Plan: 84,791 +• Stock Incentive Plan of 2016, as amended and restated: 5,043,053 +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". +Item 14. Principal Accountant Fees and Services +The information called for by Item 14 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in section "Independent Registered Public Accounting Firm". +PART IV +Item 15. Exhibits, Financial Statement Schedules +(a) The following documents are filed as part of this report: +(1) Financial Statements Included in Item 8 +The following consolidated financial statements of Wolverine World Wide, Inc. and its subsidiaries are filed as a part of this report: +• Consolidated Statements of Operations for the Fiscal Years Ended December 28, 2024, December 30, 2023 and December 31, 2022. +• Consolidated Statements of Comprehensive Income (Loss) for the Fiscal Years Ended December 28, 2024, December 30, 2023 and December 31, 2022. +• Consolidated Balance Sheets as of December 28, 2024 and December 30, 2023. +• Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 2024, December 30, 2023 and December 31, 2022. +• Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended December 28, 2024, December 30, 2023 and December 31, 2022. +• Notes to the Consolidated Financial Statements. +• Reports of Independent Registered Public Accounting Firm. +(2) Financial Statement Schedules Attached as Appendix A +The following consolidated financial statement schedule of Wolverine World Wide, Inc. and its subsidiaries is filed as a part of this report: +• Schedule II - Valuation and Qualifying Accounts. +All other schedules (I, III, IV, and V) for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted. +(3) Exhibits +The following exhibits are filed with this Annual Report or incorporated by reference. The Company will furnish a copy of any exhibit listed below to any stockholder without charge upon written request to General Counsel and Secretary, 9341 Courtland Drive N.E., Rockford, Michigan 49351. +Exhibit Number Document +3.1 +Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 24, 2014. +3.2 +Amended and Restated By-laws. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 7, 2022. +78 +Exhibit Number Document +4.1 +Description of the Registrant's Securities Registered Pursuant To Section 12 of The Securities Exchange Act of 1934. Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2019. +4.2 +Senior Notes Indenture, dated August 26, 2021, among Wolverine World Wide, Inc., the guarantors named therein, and The Huntington National Bank. Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 26, 2021. +4.3 +Form of 4.000% Senior Notes due 2029. Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on August 26, 2021. +10.1 +Amended and Restated Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.2 +Outside Directors’ Deferred Compensation Plan.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 17, 2008. +10.3 +Wolverine World Wide, Inc. Deferred Compensation Plan, Amended and Restated.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 13, 2018. +10.4 +First Amendment to the Wolverine World Wide, Inc. Deferred Compensation Plan, dated as of December 29, 2020.* Incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.5 +Amended and Restated Stock Option Loan Program.* Incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. +10.6 +Separation Agreement between Wolverine World Wide, Inc. and James D. Zwiers dated as of December 19, 2023.* Incorporated by reference to Exhibit 10.6 to the Company's Annual Rep ort on Form 10-K for the fiscal year ended December 30, 202 3. +10.7 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.7. +10.8 +Executive Severance Agreement.* Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. A participant schedule of current executive officers who are parties to this agreement is attached as Exhibit 10.8. +10.9 +Executive Severance Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.10 +Amendment, dated as of March 25, 2021, to the Executive Severance Agreement between Brendan Hoffman and the Company, dated as of September 8, 2020.* Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 26, 2021. +10.11 +Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and certain executive officers. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. All executive officers and directors are parties to this agreement. +10.12 +Indemnification Agreement between Brendan Hoffman and the Company, dated August 7, 2020.* Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 13, 2020. +10.13 +Employment Agreement between Isabel Soriano and the Company.* Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.14 +Employment Agreement between Christopher E. Hufnagel and the Company, dated September 7, 2023.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2023. +10.15 +Transition Agreement between Wolverine World Wide, Inc. and Michael D. Stornant dated as of May 7, 2024.* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2024. +10.16 +Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. +10.17 +409A Supplemental Executive Retirement Plan (2008 Restatement through First Amendment).* Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2017. A participant schedule of current executive officers who participate in this plan is attached as Exhibit 10.1 7 . +79 +Exhibit Number Document +10.18 +Second Amendment to the 409A Supplemental Executive Retirement Plan.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2024. +10.19 +Employees’ Pension Plan (Restated as amended through December 29, 2017).* Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2017. +10.20 +Sixth Amendment to the Wolverine Employees' Pension Plan.* Incorporated by reference to Exhibit 10.34 to the Company's Form 10-K for the fiscal year ended December 29, 2018. +10.21 +First Amendment to the Wolverine Employees' Pension Plan, dated as of December 2, 2020.* Incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2021. +10.22 +Second Amendment to the Wolverine Employees' Pension Plan, dated as of December 9, 2021.* Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2022. +10.23 +Stock Incentive Plan of 2010.* Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed on March 4, 2010. +10.24 +Amended and Restated Stock Incentive Plan of 2013.* Incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K for the fiscal year ended December 28, 2013. +10.25 +2016 Form of Non-Qualified Stock Option Agreement.* Incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2016. +10.26 +Wolverine World Wide, Inc. Stock Incentive Plan of 2016, as amended and restated.* Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed on March 26, 2021. +10.27 +Wolverine World Wide, Inc. Stock Incentive Plan of 2024, as amended and restated.* Incorporated by reference to Appendix B to the Company's Definitive Proxy Statement filed on March 20, 2024. +10.28 +2021 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 3, 2021. +10.29 +2022 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.30 +2023 Form of Restricted Stock Unit Agreement.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2023. +10.31 +Form of Performance Stock Unit Agreement (2022 - 2024 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2022. +10.32 +Form of Performance Stock Unit Agreement (2023 - 2025 performance period).* Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2023. +10.33 +F orm of Performance Stock Unit Agreement (2024 - 2026 performance p eriod). * Inc orporate d by reference to Exhibit 10 .1 to the Company's Qu arterly Rep ort on Form 10-Q for the period ended March 30, 2024. +10.34 +Credit Agreement, dated as of July 31, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 1, 2012. +10.35 +First Amendment to Credit Agreement, dated as of September 28, 2012, by and among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012. +10.36 +Second Amendment to the Credit Agreement, dated as of October 8, 2012, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 9, 2012. +80 +Exhibit Number Document +10.37 +Replacement Facility Amendment, dated as of October 10, 2013, to the Amended and Restated Credit Agreement among Wolverine World Wide, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 11, 2013. +10.38 +Omnibus Amendment, dated as of December 19, 2014 to the Amended and Restated Credit Agreement dated as of October 10, 2013 among Wolverine World Wide, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as syndication agent, Bank of America, N.A., Fifth Third Bank, PNC Bank, National Association, Sumitomo Mitsui Banking Corporation, Union Bank, N.A., And BBVA Compass Bank, as co-documentation agents, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on March 3, 2015. +10.39 +Replacement Facility Amendment, dated as of July 13, 2015, among Wolverine World Wide, Inc., JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association and MUFG Union Bank, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 15, 2015. +10.40 +First Amendment, dated September 15, 2016, to the Amended and Restated Credit Agreement, dated July 13, 2015, among Wolverine World Wide, Inc., as parent borrower, the several banks and other financial institutions or entities from time to time parties thereto, the several agents and other financial institutions or entities from time to time parties thereto, J.P. Morgan Europe Limited, as foreign currency agent, and JPMorgan Chase Bank, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K, filed on September 19, 2016. +10.41 +2018 Replacement Facility Amendment, dated as of December 6, 2018 among the Company, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, Wells Fargo Bank, National Association, Bank of America, N.A. and HSBC Bank USA, N.A., as co-syndication agents and lenders, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 11, 2018. +10.42 +Second Amendment, dated as of May 5, 2020, to the Amended and Restated Credit Agreement, dated as of December 6, 2018, among Wolverine World Wide, Inc., as parent borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, the other borrowers party thereto, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 6, 2020. +10.43 +2021 Replacement Facility Amendment and Reaffirmation Agreement, dated as of October 21, 2021, among Wolverine World Wide, Inc., as parent borrower, the Additional Borrowers party thereto, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on October 25, 2021. +10.44 +Cover Amendment to the Credit Agreement, dated as of April 10, 2023, among Wolverine World Wide, Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 2023. +10.45 +Fourth Amendment to the Credit Agreement, dated as of June 30, 2023, among Wolverine World Wide, Inc. as borrower, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 2023. +10.46 +Fifth Amendment to the Credit Agreement, dated as of December 21, 2023, among Wolverine World Wide, Inc. as borrower, JP Morgan Chase Bank, N.A., as administrative agent and as a lender, J.P. Morgan Europe Limited, as foreign currency agent, Wells Fargo Bank, National Association, as syndication agent and as a lender, Fifth Third Bank, as documentation agent and as a lender, and PNC Bank, National Association, as documentation agent and as a lender. Incorpor ated by reference to Exhibit 10. 49 to the Comp any's Annual Report on Form 10- K for the fiscal year ended December 30, 202 3. +10.47 +Receivables Purchase Agreement dated as of December 7, 2022, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Wells Fargo Bank, N.A. as purchaser. Incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022. +81 +Exhibit Number Document +10.48 +First Amendment, dated as of June 30, 2023, to the Receivables Purchase Agreement dated as of December 7, 2022, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Wells Fargo, N.A. as purchaser. Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 2023. +10.49 +Second Amendment, dated as of March 27, 2024, to the Receivables Purchase Agreement dated as of December 7, 2022, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Wells Fargo, N.A. as purchaser. Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2024. +10.50 +Third Amendment, dated as of April 15, 2024, to the Receivables Purchase Agreement dated as of December 7, 2022, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Wells Fargo, N.A. as purchaser. Incorporated by reference to Exhibit 10. 3 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2024. +10.51 +Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 28, 2017. +10.52 +Wolverine World Wide, Inc. Amended and Restated Executive Short-Term Incentive Plan (Annual Bonus Plan).* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 29, 2019. +10.53 +Consent Decree by and among Wolverine World Wide, Inc., the State of Michigan, Plainfield Charter Township, and Algoma Township. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 7, 2020. +10.54 +Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 26, 2020. +10.55 +Amended Employment Agreement between Brendan Hoffman and the Company.* Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 23, 2021. +10.56 +Asset Purchase Agreement dated as of February 7, 2023, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Vincent Camuto LLC and DBI Brands Management LLC, as purchaser. Incorporated by reference to Exhibit 10.53 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022. +10.57 +Purchase Agreement dated as of January 10, 2024, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and ABG Intermediate Holdings 2 LLC, as purchaser. Incorporated by reference to Exhibit 10.59 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2023. +10.58 +Purchase Agreement dated as of January 10, 2024, among Wolverine World Wide, Inc. and certain of its subsidiaries as sellers, and Aldo U.S. Inc., as purchaser. Incorporated by reference to Exhibit 10. 60 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2023. +19 +Wolverine World Wide, Inc. Insider Trading Poli cy. +21 +Subsidiaries of Registran t. +23 +Consent of Ernst & Young LLP. +31.1 +Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley Act of 2002. +31.2 +Certification of Executive Vice President, Chief Financial Officer and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002. +32 +Certification pursuant to 18 U.S.C. § 1350. +97 +Wolverine World Wide, Inc. Clawback Policy . Incorporated by reference to the Co mpany's Annual Rep or t on Form 10-K for the fiscal year ended December 30, 2023. +101 +The following financial information from the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024, formatted in Inline XBRL: (i) Consolidated Statements of Operations; (ii) Consolidated Statements of Comprehensive Income (loss); (iii) Consolidated Balance Sheets; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Stockholders’ Equity; and (vi) Notes to Consolidated Financial Statements. +104 +The cover page of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024, formatted in Inline XBRL (included in Exhibit 101). +* Management contract or compensatory plan or arrangement. +82 +Item 16. Form 10-K Summary +None. +83 +SIGNATURES +Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +WOLVERINE WORLD WIDE, INC. +Date: February 20, 2025 By: /s/ Christopher E. Hufnagel +Christopher E. Hufnagel +President and Chief Executive Officer (Principal Executive Officer) +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. +Signature Title Date +/s/ Christopher E. Hufnagel President and Chief Executive Officer +(Principal Executive Officer) February 20, 2025 +Christopher E. Hufnagel +/s/ Taryn L. Miller Chief Financial Officer and Treasurer +(Principal Financial and Accounting Officer) February 20, 2025 +Taryn L. Miller +/s/ Nicholas T. Long Chairman of the Board February 20, 2025 +Nicholas T. Long +/s/ Stacia J.P. Andersen Director February 20, 2025 +Stacia J.P. Andersen +/s/ Jeffrey M. Boromisa Director February 20, 2025 +Jeffrey M. Boromisa +/s/ Jodi Bricker Director February 20, 2025 +Jodi Bricker +/s/ William K. Gerber Director February 20, 2025 +William K. Gerber +/s/ David T. Kollat Director February 20, 2025 +David T. Kollat +/s/ Brenda J. Lauderback Director February 20, 2025 +Brenda J. Lauderback +/s/ DeMonty Price Director February 20, 2025 +DeMonty Price +/s/ Kathleen Wilson-Thompson Director February 20, 2025 +Kathleen Wilson-Thompson +84 +APPENDIX A +Schedule II - Valuation and Qualifying Accounts +Wolverine World Wide, Inc. and Subsidiaries +(In millions) Balance at +Beginning of +Period +Charged to +Costs and +Expenses Deductions +(Describe) Balance at +End of +Period +Fiscal Year Ended December 28, 2024 +Allowance for credit losses $ 5.7 $ 1.0 $ 4.8 (A) $ 1.9 +Product returns reserve 13.1 122.1 123.0 (B) 12.2 +Allowance for cash discounts and customer markdowns 12.6 5.9 11.8 (C) 6.7 +Inventory valuation allowances 20.7 5.2 15.0 (D) 10.9 +Total $ 52.1 $ 134.2 $ 154.6 $ 31.7 +Fiscal Year Ended December 30, 2023 +Allowance for credit losses $ 3.3 $ 5.0 $ 2.6 (A) $ 5.7 +Product returns reserve 15.3 134.6 136.8 (B) 13.1 +Allowance for cash discounts and customer markdowns 7.8 14.1 9.3 (C) 12.6 +Inventory valuation allowances 33.0 7.9 20.2 (D) 20.7 +Total $ 59.4 $ 161.6 $ 168.9 $ 52.1 +Fiscal Year Ended December 31, 2022 +Allowance for credit losses $ 4.0 $ 1.8 $ 2.5 (A) $ 3.3 +Product returns reserve 16.6 106.0 107.3 (B) 15.3 +Allowance for cash discounts and customer markdowns 7.7 10.9 10.8 (C) 7.8 +Inventory valuation allowances 10.7 30.0 7.7 (D) 33.0 +Total $ 39.0 $ 148.7 $ 128.3 $ 59.4 +(A) Accounts charged off, net of recoveries. +(B) Actual customer returns. +(C) Discounts given to customers. +(D) Adjustment upon disposal of related inventories. +A-1 \ No newline at end of file diff --git a/raw/filings/0000110471/2024/0000110471-25-000046/filing_metadata.csv b/raw/filings/0000110471/2024/0000110471-25-000046/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..30110813887557a77be8132346d74322f0df9aeb --- /dev/null +++ b/raw/filings/0000110471/2024/0000110471-25-000046/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000110471,WWW,WOLVERINE WORLD WIDE INC /DE/,10-K,2025-02-20,2024-12-28,2025-02-20T18:03:22.000Z,0000110471-25-000046,www-20241228.htm,FORM 10-K,13851433,1,1,https://www.sec.gov/Archives/edgar/data/110471/000011047125000046/www-20241228.htm,https://www.sec.gov/Archives/edgar/data/110471/000011047125000046/,2024,2024,1 diff --git a/raw/filings/0000110471/2024/0000110471-25-000046/item1.txt b/raw/filings/0000110471/2024/0000110471-25-000046/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..b3af9ee6b81fad291f1fc2eb34c75d20155bdec3 --- /dev/null +++ b/raw/filings/0000110471/2024/0000110471-25-000046/item1.txt @@ -0,0 +1,76 @@ +Item 1. Business +General +Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom ("U.K.") and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures. +Today, the Company sources and markets a broad range of footwear and apparel styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , HYTEST ® , Merrell ® , Saucony ® , Sweaty Betty ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; and Saucony ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel. +The Company’s portfolio of brands is organized into the following reportable segments. +• Active Group, consisting of Merrell ® footwear and apparel, Saucony ® footwear and apparel, Sweaty Betty ® activewear, and Chaco ® footwear; and +• Work Group, consisting of Wolverine ® footwear and apparel, Cat ® footwear, Bates ® uniform footwear, Harley-Davidson ® footwear and HYTEST ® safety footwear; +Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are included with the applicable brand. +The Company also reports “Other” and “Corporate” categories. The Other category consists of Sperry ® footwear, Keds ® footwear, Hush Puppies ® footwear and apparel, the Company’s leather marketing operations, sourcing operations that include third-party commission revenues, multi-branded direct-to-consumer retail stores and the Stride Rite ® licensed business. The Corporate category consists of gains on the sale of businesses and trademarks, unallocated corporate expenses, such as corporate employee costs, corporate facility costs, reorganization activities, impairment of long-lived assets and environmental and other related costs. +The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s direct-to-consumer businesses. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions. +The Company's reportable segments and related brands are described in more detail below. +1. Active Group +Merrell ® : Merrell ® believes in sharing the simple power of being outside. After over 40 years, with a persistent focus on innovation, design and testing, Merrell ® has become a global leader in hiking footwear, with a rapidly growing following in trail running and lifestyle. All of this is fueled by a desire to build a world where everyone can safely enjoy the benefits of being outdoors. Merrell ® can be found across the globe, on Merrell.com, in key outdoor and sporting goods retail stores and in Company owned Merrell ® stores. +Saucony ® : Saucony ® is a leading purpose-driven performance running lifestyle brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award-winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional +5 +style needs as well. Widely recognized for award-winning technologies, Saucony ® innovations include INCREDIRun foam, a revolutionary TPEE compound engineered to provide exceptional efficiency; PWRRUN™ PB, a beaded superfoam that delivers high-performance energy return; PWRRUN+™ a cushioning foam for a plush ride; and SPEEDROLL™ Technology, a blend of premium foam and forward geometry to promote a faster transition. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty, mall specialty and sporting goods retailers, as well as via an eCommerce site and in Company-owned Saucony ® retail stores. +Sweaty Betty ® : Sweaty Betty ® is a global women’s activewear and lifestyle brand that has been on a mission to empower women through fitness and beyond since 1998. Famous and trusted for its “bum-sculpting” leggings and innovative designs, Sweaty Betty ® fuses performance and style with technical, high-performance fabrics and responsibly sourced materials designed to outlast, outperform and outfit active women at all life stages. The brand services its loyal, fast-growing community worldwide through SweatyBetty.com, complemented by retail locations across the United Kingdom, United States, Europe, New Zealand and Asia and in the world’s best luxury retailers, including Selfridges, Harrods and Nordstrom. Through the Sweaty Betty Foundation, the brand aims to give more girls access to activities they love, helping the next generation get and stay active for life. +Chaco ® : For more than 35 years Chaco ® has been inspiring new generations to take on everyday adventures. Originating as an innovator in the whitewater rafting world, Chaco ® continues to design footwear for all walks of life and for a lifetime of adventure, in and out of water. Chaco ® products are distributed primarily though the Chaco ® eCommerce site and other leading online and brick and mortar retailers. +2. Work Group +Wolverine ® : For more than 140 years, Wolverine ® has existed to support people who forge their own path: those who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories made to outfit those working in the core trades across the world. The brand is known for its heritage, durability, and best-in-class performance comfort technology, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores. +Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for over three decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men and women, sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc. +Bates ® : Bates ® Footwear is a leading supplier of tactical and uniform footwear for first responders. Civilian uniform users include police officers, firefighters, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers, catalog retailers and online retailers. +Harley-Davidson ® Footwear : Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle, casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC. +HYTEST ® Safety Footwear : The HYTEST ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including metatarsal guards, steel toe, composite toe, nano toe, electrical hazard protection, static dissipating, puncture resistant and conductive footwear. HYTEST ® footwear is distributed primarily through a distributor network with Shoemobile ® mobile trucks and retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and through direct sales arrangements with large industrial customers. +6 +Other Businesses +In addition to its reportable segments, the Company operates sourcing operations, a multi-brand direct-to-consumer business, the licensing of its Stride Rite ® brand and Hush Puppies ® brand. The Company's results included in Other also include brands and businesses that the Company sold in 2023 and 2024, as noted below. +Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. As a result of the decision to license the brand in North America in 2023, Hush Puppies® became a fully global licensed brand with over 560 Hush Puppies stores and multiple eCommerce sites across the globe. Hush Puppies®, with its basset hound icon, is one of the most well-known and loved brands worldwide. The Company sold the rights to the Hush Puppies ® trademarks, patents, copyrights and domains in China, Hong Kong and Macau to its current sublicensee, Beijing Jiaman Dress Co., Ltd. The transaction closed on September 14, 2023. +Stride Rite ® Licensed Business: With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. +Sourcing Division: The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services. +Multi-brand Direct-to-Consumer Division: The multi-brand direct-to-consumer division includes retail stores that sell footwear and apparel from the Company's brand portfolio and other brands. +Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. Effective January 10, 2024 the Company sold the global Sperry ® business to Authentic Brands Group LLC. +Keds ® : For over 100 years, Keds ® has been making timeless, comfortable, accessible footwear for consumers to step out into the world their way. Effective February 4, 2023 the Company sold the global Keds ® business to Designer Brands, Inc. +Wolverine Leathers Division: The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Wolverine Leathers Division was sold in two separate transactions in 2023. +Marketing +The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that drive consumer demand creation, fuel consumer obsession and foster a consistent message for each of the Company’s brands across the globe. Marketing campaigns and strategies vary by brand and are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s marketing typically emphasizes compelling brand stories and brand recognition associated with new and existing products, the performance, comfort and quality features and styles of our products within each of the Company’s brands, as well as raising global brand relevance and awareness. The Company’s brand marketing has an omni-channel, always-on approach and includes various means of delivery across digital, print and radio, including advertising through event sponsorship, social networking sites, event sponsorships, in-store activation and sales and technical assistance. +The Company operates branded eCommerce sites that the Company believes are effective tools for marketing and selling to consumers. The Company maintains an active presence on a variety of global social media platforms, and the Company’s digital marketing seeks to create demand among new consumers as well as connecting consumers to brand content and products. +In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging. The Company believes its brand names represent a competitive advantage, and the Company, its licensees and its distributors make significant marketing investments to promote and enhance the market positions of its products and drive brand awareness. +Domestic Sales and Distribution +The Company uses a variety of means to support sales to a variety of domestic distribution channels: +• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales. +7 +• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own direct-to-consumer business. +• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers. +• The Company also operates brick and mortar retail stores and eCommerce sites. +International Operations and Global Licensing +The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from a joint venture that markets the Company’s branded products in Mexico. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company divested its ownership interests in the China joint venture entities effective January 1, 2024. +The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company. +Manufacturing and Sourcing +The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing. +Trademarks, Licenses and Patents +The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include but are not limited to Hush Puppies ® , Wolverine ® , Bates ® , Bounce ® , Chaco ® , HYTEST ® , Merrell ® , Saucony ® , Stride Rite ® , Sweaty Betty ® , and related logos and design marks. The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license term runs through December 31, 2028 and the Harley-Davidson ® license term runs through December 31, 2029. Both licenses are subject to early termination for breach. +The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws. +Seasonality +The Company experiences moderate fluctuations in sales volume during the year, as reflected in quarterly revenue. The Company expects current seasonal sales patterns to continue in future years. The Company also experiences some fluctuation in its levels of working capital, typically reflecting an increase in net working capital requirements near the end of the first and third fiscal quarters as the Company builds inventory to support peak shipping periods. Historically, cash provided by operating +8 +activities is higher in the second half of the fiscal year due to collection of wholesale channel receivables and higher direct-to-consumer sales during the holiday season. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under its revolving credit facility, as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company's working capital could also be impacted by other events. +Competition +The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear and apparel designers and marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences. +Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position. +Environmental Matters +The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements. +Human Capital Resources +Employee Profile : As of December 28, 2024, the Company had approximately 3,100 domestic and foreign retail, distribution, office and sales employees. The Company values its employees and works to maximize the engagement and contribution of its current workforce and to attract the best talent available from outside the organization when needed. +Talent Recruitment, Retention and Development : The Company's talent strategy is focused on attracting top talent and developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while aiming to ensure opportunities for growth and development for team members. Our engaging recruitment marketing website tells a compelling story of opportunity and inclusion, and highlights the Company culture. With a focus on modern recruitment systems and strategies we aim to provide a seamless transition for new employees. Development starts on day one with an enriching day one experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work. +The Company seeks to maximize engagement and contribution of team members and the Company stays connected with team members across many experience touchpoints throughout the employee lifecycle, including regular pulse and check in surveys. Insights from these surveys are valuable to understanding employees' needs, which helps us develop strategies to maintain positive employee sentiment and well-being. The Company's annual talent planning process provides invaluable data to help retain key talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development. +The Company benchmarks its benefits regularly and keeps abreast of current and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the Company's employees’ respective geographic region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state-of-the-art fitness center, child care, and doggie day care facilities for employees. +The Company believes that leaders should be developed at every stage of their career, from new managers to executives. Through partnership with Harvard Business School, our new manager leadership development program fosters collaboration and teaches managers leadership skills needed to build, retain, and inspire our teams. The Company's internal global leadership programs teach skills needed to lead through transformation and build key leadership capabilities needed for the Company to +9 +grow. The Company also provides high potential assessments and executive coaching to its leadership to build capabilities needed to grow the Company’s business and talent. To enhance all corporate employees’ career development and growth, the Company offers a vast library of expert-led courses covering business, technical, and creative skills, quick reference guides, toolkits and internal one-on-one professional coaching. +Inclusion and Belonging : Wolverine World Wide is committed to creating an inclusive culture where everyone feels valued and respected, and all have an equal opportunity to succeed. The Company recently launched UN1TED, the goal of which is to amplify the progress made to date in advancing the Company's inclusion and belonging initiatives. The Company has internal Employee Resource Groups open to all employees that connect, celebrate, and support communities across the organization. In addition, the Company offers employees a comprehensive inclusion learning program which includes learning about inclusive teams, inclusive leadership, and inclusive selection. +Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. +Available Information +Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel. +The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov . \ No newline at end of file diff --git a/raw/filings/0000110471/2024/0000110471-25-000046/item13.txt b/raw/filings/0000110471/2024/0000110471-25-000046/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c6b4e0ce38d9f5c5ef9827895af49bfa95096deb --- /dev/null +++ b/raw/filings/0000110471/2024/0000110471-25-000046/item13.txt @@ -0,0 +1,2 @@ +Item 13. Certain Relationships and Related Transactions, and Director Independence +The information called for by Item 13 is incorporated herein by reference to the Definitive Proxy Statement referenced above in Item 10 in sections "Related Party Matters" and "Director Independence". \ No newline at end of file diff --git a/raw/filings/0000110471/2024/0000110471-25-000046/item9a.txt b/raw/filings/0000110471/2024/0000110471-25-000046/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..e9bec186c564d0a8112606dd79c297814da311ef --- /dev/null +++ b/raw/filings/0000110471/2024/0000110471-25-000046/item9a.txt @@ -0,0 +1,8 @@ +Item 9A. Controls and Procedures +Evaluation of Disclosure Controls and Procedures +An evaluation was performed under the supervision, and with the participation, of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on and as of the time of such evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K. +Management’s Report on Internal Control Over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting as of December 28, 2024, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013 framework). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that internal control over financial reporting was effective as of December 28, 2024. +The effectiveness of the Company’s internal control over financial reporting as of December 28, 2024 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference. +Changes in Internal Control Over Financial Reporting +There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended December 28, 2024 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting. \ No newline at end of file diff --git a/raw/filings/0000110471/2024/0000110471-25-000046/rp_note.txt b/raw/filings/0000110471/2024/0000110471-25-000046/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..fb533403bf23ddea98dd3ac857b525d738c5ef44 --- /dev/null +++ b/raw/filings/0000110471/2024/0000110471-25-000046/rp_note.txt @@ -0,0 +1,20 @@ +19. VARIABLE INTEREST ENTITIES AND RELATED PARTY TRANSACTIONS +Assets and Liabilities of Consolidated VIEs +The Company had joint ventures, which were divested effective January 1, 2024, that sourced and marketed the Company’s footwear and apparel products in China. Based upon the criteria set forth in FASB ASC 810, Consolidation , the Company had determined two of the consolidated joint ventures were variable interest entities (VIEs) of which the Company was the primary beneficiary and, as a result, the Company consolidated these VIEs. The primary beneficiary determination was based on the relationship between the Company and the VIE, including contractual agreements between the Company and the VIE. The Company had determined that two of the VIEs that were consolidated met the criteria to be classified as held for sale as of year end 2023. Refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +Specifically, the Company had the power to direct the activities that were considered most significant to the entities’ performance and the Company had the obligation to absorb losses and the right to receive benefits that were significant to the entities. The other equity holder’s interests were reflected in “net earnings (loss) attributable to noncontrolling interests” in the Consolidated Statement of Operations and “Noncontrolling interest” in the Consolidated Balance Sheets. Assets held by the VIEs were only available to settle obligations of the respective entities. Holders of liabilities of these VIEs did not have recourse to the Company. +The following is a summary of these VIE’s assets and liabilities included in the Company’s consolidated balance sheets. +Fiscal Year +(In millions) 2023 +Assets held for sale 51.6 +Liabilities held for sale 15.4 +Nonconsolidated VIEs +The Company also had two joint ventures, which were divested effective January 1, 2024, that were VIEs that were not consolidated as the Company did not have the power to direct the most significant activities that impact the VIEs' economic +69 +performance. The two VIEs distributed footwear and apparel products in the Asia Pacific region. The Company had determined that the VIEs that were not consolidated met the criteria to be classified as held for sale as of year-end fiscal 2023. Refer to Note 20, "Divestitures and Assets and Liabilities Held for Sale" for additional discussion. +Related Party Transactions +In the normal course of business, the Company entered into transactions with related party equity affiliates. Related party transactions consisted of the sale of goods, made at arm’s length, and other arrangements. For the fiscal year ended December 30, 2023 the Company recognized net sales to equity affiliates totaling $ 66.5 million. For the fiscal year ended December 28, 2024, the Company did not recognize any sales to equity affiliates. +The following table summarizes related party transactions included in the consolidated balance sheets. +Fiscal Year +(In millions) 2023 +Accounts receivable due from related parties $ 15.4 +Long term liabilities due to related parties 1.4 \ No newline at end of file diff --git a/raw/filings/0000110471/2024/0000110471-25-000046/rpt_disclosure.txt b/raw/filings/0000110471/2024/0000110471-25-000046/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..4ae925a33cf2007d534c1c4a065be6b6b30f5e87 --- /dev/null +++ b/raw/filings/0000110471/2024/0000110471-25-000046/rpt_disclosure.txt @@ -0,0 +1,34 @@ +Certain Relationships and Related Transactions +Since December 29, 2024, the Company has not engaged in any “related person” transactions with any person who is or was during the last fiscal year a director, executive officer, nominee for director or holder of 5% or more of Company voting securities, affiliate or any member of the immediate family of the foregoing persons. +Related Person Transactions Policy +The Board adopted written policies and procedures regarding related person transactions. They require the Governance Committee to review and either approve or disapprove the Company entering into any Interested Transactions (defined below). If advance approval is not feasible, then the Governance Committee must review and ratify the Interested Transaction at its next meeting. +Interested Transaction +Any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which: +(1) +The aggregate amount involved exceeds or is expected to exceed $120,000 since the beginning of Wolverine Worldwide’s last completed fiscal year; +(2) +The Company or any of its subsidiaries is a participant; and +(3) +Any Related Person (defined below) has or will have a direct or indirect interest. +An Interested Transaction does not include: +(1) +Any employment compensation paid to an executive officer of the Company if the Compensation and Human Capital Committee approved or recommended to the Board of Directors for approval of such compensation; +(2) +Any compensation paid to a director for service as a director of the Company; +(3) +Any transaction in which a Related Person has an indirect interest solely as a result of being (i) a director or, together with all other Related Persons, as defined below, a less than 10% beneficial owner of an equity interest in another entity, or both, or (ii) a limited partner in a partnership in which the Related Person, together with all other Related Persons, has an interest of less than 10%; +(4) +Any transaction in which the Related Person’s interest arises solely from the ownership of the Company’s common stock and all holders of the Company’s common stock received the same benefit on a pro rata basis (e.g., a dividend); or +(5) +Any transaction with another publicly traded company where the Related Person’s interest arises solely from the ownership of more than 5% of the Company’s common stock and the ownership of a non-controlling interest in the other publicly traded company. +Related Person +Any: +(a) +Person who is or was at any time since the beginning of the Company’s last completed fiscal year even if they do not presently serve in that role, an executive officer, a director or, to the extent information regarding such nominee is being presented in a proxy or information statement relating to the election of that nominee as a director, a nominee for election as a director; +(b) +Beneficial owner of greater than five percent of Wolverine Worldwide’s common stock; or +(c) +Immediate family member* of any of the foregoing. +* +Immediate family member is defined as a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law, and anyone residing in such person’s home (other than a tenant or employee). +The Governance Committee considers whether the Interested Transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the Related Person’s interest in the transaction, and other factors that it deems relevant. No director participates in any discussion or approval of an Interested Transaction for which he or she is a Related Person, except to provide information to the Governance Committee. \ No newline at end of file diff --git a/raw/filings/0000794172/2014/0001193125-14-428676/filing_metadata.csv b/raw/filings/0000794172/2014/0001193125-14-428676/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..e18d41658eda64d151d96228d15aab8bfdc50866 --- /dev/null +++ b/raw/filings/0000794172/2014/0001193125-14-428676/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000794172,VIVO,MERIDIAN BIOSCIENCE INC,10-K,2014-12-01,2014-09-30,2014-12-01T15:21:55.000Z,0001193125-14-428676,d806176d10k.htm,ANNUAL REPORT,6380682,1,0,https://www.sec.gov/Archives/edgar/data/794172/000119312514428676/d806176d10k.htm,https://www.sec.gov/Archives/edgar/data/794172/000119312514428676/,2014,2014,1 diff --git a/raw/filings/0000794172/2014/0001193125-14-428676/item1.txt b/raw/filings/0000794172/2014/0001193125-14-428676/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..616864e5df5d321098fdc44977d6834934fe6501 --- /dev/null +++ b/raw/filings/0000794172/2014/0001193125-14-428676/item1.txt @@ -0,0 +1,294 @@ +ITEM 1. +BUSINESS +Overview +Meridian is a fully-integrated life science company with principal businesses in (i) the development, manufacture, sale and distribution of diagnostic +test kits, primarily for certain gastrointestinal, viral, respiratory and parasitic infectious diseases; (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and bioresearch +reagents used by researchers and other diagnostic manufacturers; and (iii) the contract development and manufacture of proteins and other biologicals under cGMP conditions for use by biopharmaceutical and biotechnology companies engaged in +research for new drugs and vaccines. The Company was incorporated in Ohio in 1976. Our principal corporate offices are located near Cincinnati, Ohio, USA. +Our website is www.meridianbioscience.com . We make available our Annual Reports on Form 10-K, Quarterly Reports on +Form 10-Q, Current Reports on Form 8-K and any amendments thereto, free of charge through this website, as soon as reasonably practicable after such material has been electronically filed with or +furnished to the Securities and Exchange Commission (SEC). These reports may also be read and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549, phone number 1-800-732-0330. The SEC maintains an internet site containing these filings and other information regarding Meridian at www.sec.gov . The information on our website is not and should not be considered +part of this Annual Report on Form 10-K. +Reportable Segments +Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations in Cincinnati, Ohio, and the sale and +distribution of diagnostic test kits in the U.S. and Canada (“North America”); Europe, Middle East and Africa (“EMEA”); and other countries outside of North America +- 5 - +Table of Contents +and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; Luckenwalde, Germany; +and Sydney, Australia, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells and bioresearch reagents domestically and abroad, including a sales and business development location in Singapore. +Additionally, in order to further pursue revenue opportunities in Asia, and China in particular, our Life Science segment is in the process of opening a representative office in Beijing, China. The Life Science segment also includes the contract +development and manufacture of cGMP clinical grade proteins and other biologicals for use by biopharmaceutical and biotechnology companies engaged in research for new drugs and vaccines. Financial information for Meridian’s reportable segments +is included in Note 7 to the consolidated financial statements. +Diagnostics Segment +Overview of Products and Markets +Our primary +source of revenues continues to be diagnostic products, with our Diagnostics segment providing 75% of consolidated net revenues for fiscal 2014. Third-party revenues for this segment were $142,000, $145,000 and $130,000 for fiscal 2014, 2013 and +2012, respectively, reflecting a three-year compound annual growth rate of 6%. As of September 30, 2014, our Diagnostics segment had approximately 350 employees in seven countries. +Our diagnostic products provide accuracy, simplicity and speed; enable early diagnosis and treatment of common, acute medical conditions; and provide for +better patient outcomes at reduced costs. We target diagnostics for disease states that (i) are acute conditions where rapid diagnosis impacts patient outcomes; (ii) have opportunistic demographic and disease profiles; (iii) are +underserved by current diagnostic products; and (iv) have difficult sample handling requirements (stool, blood, urine and other body fluids). This approach has allowed us to establish significant market share in our target disease states. +Our diagnostic products span a broad menu of testing platforms and technologies, and also include transport media that store and preserve specimen samples +from patient collection to laboratory testing. Our testing platforms include: +• +Isothermal DNA Amplification ( illumi gene ® brand) – high sensitivity, molecular platform that +is suitable for virtually any size laboratory, whether centralized or decentralized; provides flexibility to process from 1 to 10 tests per run in generally under one hour; and requires no batching of samples. +• +Rapid Immunoassay (TRU ® , Immuno Card ® and +Immuno Card STAT! ® brands) – single-use immunoassays that can be used in point-of-care settings; these tests have fast turnaround times +(generally under 20 minutes); and can reduce expensive send-outs for hospitals and outpatient clinics. +- 6 - +Table of Contents +• +Enzyme-linked Immunoassay (Premier ® brand) – batch immunoassay platform that can process up to 96 tests per run; is highly +accurate and economical; and is adaptable to automation. +Our diagnostic products are used principally in the detection of infectious +diseases caused by various bacteria, viruses, parasites and pathogens. Our focus product families in Diagnostics are C. difficile (causative agent for antibiotic-associated diarrhea from a hospital-acquired infection), foodborne +(Enterohemorrhagic E. coli (EHEC) and Campylobacter jejuni (Campy)), and H. pylori (stomach ulcers). Revenues within our focus product families – C. difficile, foodborne and H. pylori – accounted for 61%, +62% and 62% of our Diagnostics segment’s third-party revenues during fiscal 2014, 2013 and 2012, respectively. These same product families accounted for 46%, 47% and 47% of consolidated net revenues in fiscal 2014, 2013 and 2012, +respectively. +Our product portfolio, over 140 diagnostic tests and transport media, extends beyond our focus families, reaching into +prenatal care (Group B Streptococcus ), respiratory (Group A Streptococcus, Bordetella pertussis , influenza and respiratory syncytial virus, among others), and immunocompromised patients (Cytomegalovirus), among other infectious disease +areas. During the next three to five years, we expect revenue growth from products operating on our illumi gene ® molecular testing platform (see below) that fall +outside of our focus families noted above. The primary markets and customers for our products are acute care hospitals, reference laboratories and outpatient clinics in over 60 countries around the world. +We continue to invest in new product development for our molecular testing platform, illumi gene . This platform now has five +commercialized tests (assays), with three additional tests expected to be available for sale in fiscal 2015: +1. +illumi gene ® C. difficile – commercialized in August 2010 +2. +illumi gene ® Group B Streptococcus (Group B Strep or GBS) – commercialized in December 2011 +3. +illumi gene ® Group A Streptococcus (Group A Strep) – commercialized in September 2012 +4. +illumi gene ® Mycoplasma ( M. pneumonia ; walking pneumonia) – commercialized in June 2013 +5. +illumi gene ® Bordetella pertussis (whooping cough) – commercialized in March 2014 +6. +illumi gene ® Chlamydia trachomatis – expected fiscal 2015 (launch outside of U.S.) +7. +illumi gene ® Neisseria gonorrhea – expected fiscal 2015 (launch outside of U.S.) +8. +illumi gene ® Herpes Simplex Virus I & II – expected fiscal 2015 +Additional illumi gene tests in early-stage research and development include foodborne pathogens such as Campylobacter +jejuni , and bloodborne pathogens such as the causative agents for malaria. +We believe that our +illumi gene system has been well-accepted in our global markets. We currently have approximately 1,300 customer account placements. Of these account placements, over 1,150 accounts have completed evaluations and +validations and are regularly purchasing product, with the remaining account placements being in some stage of product evaluation and/or validation. Of our account placements, we have over 300 accounts that are multi-assay users. +- 7 - +Table of Contents +Market Trends +The global market for infectious disease tests continues to expand as new disease states are identified, new therapies become available, and worldwide +standards of living and access to health care improve. More importantly, within this market, there is a continuing shift from conventional testing, which requires highly trained personnel and lengthy turnaround times for test results, to more +technologically advanced testing, which can be performed by less highly trained personnel and completed in minutes or hours. +The increasing global +pressures to contain total health care costs have accelerated the increased use of diagnostic testing. With rapid and accurate diagnoses of infectious diseases, physicians can pinpoint appropriate therapies quickly, leading to faster recovery, +shorter hospital stays and lower overall treatment cost. The creation of Accountable Care Organizations (ACOs) in our U.S. market, in particular, has the goal of increasing efficiency of health care delivery, reducing spending and improving clinical +outcomes. We believe our product portfolio positions us competitively with ACOs and health care systems that are transitioning from fee-for-service compensation models, to compensation models based on the total outcome costs of a given patient. Our +C. difficile , Group B Streptococcus , Group A Streptococcus , and H. pylori products are all examples of how a highly accurate diagnostic test on the front end can mitigate or reduce down-stream costs for antibiotic use, +symptom-relieving drugs and hospital stays. +We also continue to see aggregation of buying power in our U.S. market via multi-hospital group +purchasing organizations and integrated delivery networks, consolidation among reference laboratories, and acquisition of physician practices by hospitals. We utilize multi-year supply agreements to secure our business where possible and +appropriate. +Cost containment pressures have also affected health care systems outside the U.S., particularly in Europe, where the health care systems +are generally government-run. The level of government budget deficits can have an adverse effect on the amount of government health care spend. +Sales, Marketing and Focus Product Families +Our +Diagnostics segment’s sales and distribution network consists of the following for each of the broad geographic regions we serve: +North America +In North +America, our sales and distribution network consists of a direct sales force (U.S. only) complemented by independent distributors. The use of independent distributors in the U.S. allows our products to reach any size health care facility and also +provides our customers the option to purchase our +- 8 - +Table of Contents +products direct or through distribution along with other supplies. Two independent distributors in the U.S. accounted for 10% or more of consolidated net revenues in fiscal 2014, 2013 and 2012: +Cardinal Healthcare Corporation and Thermo Fisher Scientific. Our revenues from Cardinal were approximately $28,000, $35,000 and $33,000 during fiscal 2014, 2013 and 2012, respectively. Our revenues from Fisher were approximately $23,000, $25,000 +and $20,000 during fiscal 2014, 2013 and 2012, respectively. +EMEA +In EMEA, our sales and distribution network consists of direct sales forces in Belgium, France, Holland and Italy, and independent distributors +in other European countries, Africa and the Middle East. We are implementing a direct sales presence in Germany and the U.K. for our illumi gene products. We maintain a distribution center near Milan, Italy. +ROW +With the exception of +Australia and Singapore, in which we utilize a direct sales force, we utilize independent distributors throughout the ROW. +Our Diagnostics segment’s +focus product families are described below: +C. difficile +C. difficile , causative agent of serious hospital acquired bacterial infections, is our largest product family, generating approximately $35,000 in +global revenues for fiscal 2014, or a 12% decrease from fiscal 2013 – reflecting a combination of sales of our molecular-based and traditional immunoassay products. This product family has experienced significant competition in recent years +from new technologies, including other molecular testing platforms. See Competition discussion below. +Foodborne +Our foodborne product family achieved approximately $23,000 in global revenues for fiscal 2014, or a decrease of 3%, with over 95% of such sales occurring in +the U.S. Our foodborne products include tests for Enterohemorrhagic E. coli (EHEC) and Campylobacter jejuni (Campy). In the U.S. market, we believe that there are potentially 20 million stool cultures that are tested annually for +foodborne illnesses. We continue to believe that we have less than a 20% market share for EHEC and less than a 5% market share for Campy. +While +historically the primary competition for our foodborne products has been laboratory culture methods, during 2012 one of our competitors received FDA clearance for a shiga toxin test that competes with our EHEC test. We are continuing to re-emphasize +the benefits of increased sensitivity and faster turnaround time versus culture methods in our marketing programs, and believe that our test offers better workflow, less hands-on time and quicker results, in addition to being fully compliant with +CDC-recommended testing methods. +- 9 - +Table of Contents +Helicobacter pylori +H. pylori , a bacterium found in the stomach, is a major cause of peptic ulcers and is linked to duodenal ulcers and stomach cancer. +H. pylori represents our second largest product family, generating approximately $28,000 in global revenues for 2014, or 7% growth. We offer both antibody and direct antigen tests in alternative formats (single-use and high volume +batch). Our major competition in this product family is alternative test methods, serology and urea breath, and the prescription of symptom-relieving medications. Over 70% of our H. pylori product sales are in the U.S., where our strategy for +this product line has been to partner with managed care companies to promote the health and economic benefits of a test and treat strategy, and to move physician behavior away from serology-based testing toward direct antigen testing. In the U.S. +market, we believe that there are potentially 30 million people suffering from peptic ulcers and we believe that we currently have a 5% market share. +Our patents related to our H. pylori stool antigen tests expire in 2016 in the U.S. and 2017 in countries outside the U.S. Upon patent expiration, we +may be subject to competitive product introductions, which could lead to downward pressure on selling prices. +Competition +Our major competitors in molecular diagnostics are Cepheid and Becton Dickinson, who have systems with multiple-assay menus. We also face competition in +molecular diagnostics, but to a lesser degree, from companies such as Great Basin, Nanosphere and Quidel. These latter companies have a limited commercial menu and tend to compete strictly on price. We believe that our molecular platform offers a +number of competitive features: +• +Molecular assay sensitivity that is comparable to higher costing PCR; +• +Low capital investment with no instrument service cost; +• +Small footprint that is portable and does not consume much laboratory space; and +• +Product menu that fits with initiatives to improve clinical and economic outcomes. +Our major +competitors in rapid immunoassay diagnostics are primarily Alere and Quidel. These companies tend to compete strictly on price. We believe that the breadth and depth of our product portfolio provides us with a competitive advantage. For C. +difficile , we believe that we are the only company able to offer a full line of FDA-approved immunoassay (GDH and Toxin) and molecular products, allowing the customer to choose the solution that best suits them. +- 10 - +Table of Contents +Research and Development +Our Diagnostics segment’s research and development organization, which is located at our corporate headquarters in Newtown, Ohio, a suburb of +Cincinnati, has expertise in biochemistry, immunology, mycology, bacteriology, virology, parasitology and molecular biology. Research and development expenses for the Diagnostics segment for fiscal 2014, 2013 and 2012 were approximately $10,000, +$8,000 and $8,000, respectively. This research and development organization focuses its activities on new product and new technology development, new applications for our existing technologies, and improvements to existing products. Research and +development efforts may occur in-house or with collaborative partners. We believe that new product development is a key source for sustaining revenue growth. The products within our illumi gene molecular platform and H. +pylori product family were developed solely in-house. +Manufacturing +Our immunoassay and molecular products require the production of highly specific and sensitive antigens, antibodies, primers and enzymes. While +we produce substantially all of our own requirements including monoclonal and polyclonal antibodies, and a variety of fungal, bacterial and viral antigens, currently a number of the raw materials used in our products, including our +illumi gene molecular products, are purchased from outside vendors. With the recent completion of an expansion of our molecular diagnostic manufacturing capacity at our Cincinnati, Ohio location, we believe that we +have sufficient manufacturing and sourcing capacity for anticipated growth over the next several years. +Intellectual Property, +Patents and Licenses +We own or license U.S. and foreign patents, most of which are for products manufactured by our Diagnostics segment. Revenues +from these products are as follows: +Product/Technology Family +Number of +products +% of consolidated revenues +2014 +2013 +illumi gene +5 +20 +% +18 +% +H. pylori +2 +14 +% +13 +% +Respiratory +3 +2 +% +3 +% +Other +5 +1 +% +1 +% +Total patented products +15 +37 +% +35 +% +The patents for the illumi gene products expire between 2020 and 2022; the patents for the +two H. pylori products expire in 2016 in the U.S. and in 2017 for countries outside the U.S.; and the patents for the three respiratory products expire in 2022 (two products) and 2027. The remaining five patented products for which we own or +license patents are spread over three product families. +- 11 - +Table of Contents +In the absence of patent protection, we may be vulnerable to competitors who successfully replicate our +production and manufacturing technologies and processes. Our employees are required to execute confidentiality and non-disclosure agreements designed to protect our proprietary products. +Government Regulation +Our diagnostic products are +regulated by the Food & Drug Administration (FDA) as “devices” pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). Class +I and II devices are not expressly approved by the FDA, but, instead, are “cleared” for marketing. Class III devices generally must receive “pre-market approval” from the FDA as to safety and effectiveness. +Each of the diagnostic products currently marketed by us in the United States has been cleared by the FDA pursuant to the 510(k) clearance process or is +exempt from such requirements. We believe that most, but not all, products under development will be classified as Class I or II medical devices and, in the case of most of our Class I and all Class II devices, will be eligible for 510(k) clearance; +however, we can make no assurances in this regard. Meridian’s TRU FLU ® rapid influenza assay was cleared in 2006 as a Class I device. In May 2014, the FDA proposed reclassifying +rapid influenza assays as a Class II device, requiring the submission of a new 510(k) application and subjecting TRU FLU and similar competitive devices to increased requirements for sensitivity. Once the proposed rule becomes effective, +Meridian will have one year to bring its assay up to the new requirements or remove it from the market. Sales of the TRU FLU product totaled approximately $2,500 in fiscal 2014. +Sales of our diagnostic products in foreign countries are subject to foreign government regulation, largely similar to that of the FDA. +Meridian’s Cincinnati manufacturing facility is certified to ISO 13485:2012. +Medical Device Tax +On January 1, 2013, the +medical device tax established as part of the U.S. health care reform legislation became effective and as a result, the Company made its first required tax deposit near the end of January 2013. During fiscal 2014 and 2013, the Company recorded to +cost of sales approximately $1,750 and $1,300, respectively, of medical device tax expense related to this legislation. +Seasonal Factors and +Sporadic Outbreaks +Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal, viral, upper +respiratory and parasitic infectious diseases. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses, or pandemics such as the H1N1 +- 12 - +Table of Contents +influenza outbreak during fiscal 2009. While we believe that the breadth of our diagnostic product lines reduces the risk that infections subject to seasonality and sporadic outbreaks will cause +significant variability in diagnostic revenues, we can make no assurance that revenues will not be impacted period over period by such factors. +Life +Science Segment +Overview of Products and Markets +Our Life Science segment’s business focuses on the development, manufacture, sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, +nucleotides, competent cells and bioresearch reagents used by researchers and other diagnostic manufacturing companies, as well as contract development and manufacturing services under clinical cGMP conditions. Third-party revenues for this segment +were approximately $47,000, $44,000 and $43,000 for fiscal 2014, 2013 and 2012, respectively. As of September 30, 2014, our Life Science segment had approximately 200 employees in five countries. +Most of the revenues for our Life Science segment currently come from the manufacture, sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, +nucleotides, competent cells and bioresearch reagents used by researchers and other diagnostic manufacturing companies focused on the development of immunoassay and molecular tests. Approximately 65% of Life Science revenues are generated from the +industrial market, defined as diagnostic manufacturers and the agriculture industry. This is an increasing focus for our Bioline molecular component business, which historically focused on the academic/research market that comprises the remaining +35% of revenues. We utilize direct sales teams in key countries such as the U.S., the U.K., Germany, France, Australia and Singapore. Opened in 2013, the Singapore sales and business development office is designed to increase our presence and our +revenue opportunities in Asia for both molecular and immunoassay components. Additionally, in order to further pursue revenue opportunities in Asia, and China in particular, we are in the process of opening a representative office in Beijing, China. +We utilize a network of distributors in other major countries. During fiscal 2014, 16% of third-party revenues for this segment were from two diagnostic manufacturing customers. +Products such as antibodies, antigens and reagents are marketed primarily to diagnostic manufacturing customers as a source of raw materials for their +immunoassay products, or as an outsourced step in their manufacturing processes. For example, we supply a number of major diagnostic manufacturers with proteins used to detect hepatitis A and rubella. These products are typically sold in bulk +quantities, and may also be custom-designed for a particular manufacturer’s requirements. Sales efforts are focused on multi-year supply arrangements in order to provide stability in volumes and pricing. We believe this benefits both us and our +customers. +- 13 - +Table of Contents +Molecular biology products such as PCR/qPCR reagents, nucleotides and competent cells are marketed to +academic/research and industrial customers. These products are used in measuring DNA and RNA in clinical and agricultural applications. These reagents improve the purity, yield and speed of PCR reactions. Products such as MyTaq™ and +SensiFAST™ are examples of this type of PCR/qPCR reagent. +Our clinical cGMP protein production facility in Memphis, Tennessee serves as an enabling +technology for process development and large-scale manufacturing for biologicals used in new drugs and vaccines. The size of the facility is intended to accommodate manufacturing requirements for Phase I and Phase II clinical trials for +biopharmaceutical, biotechnology and government agency customers. Our revenues for contract services were approximately $3,000, $3,000 and $2,000 in fiscal 2014, 2013 and 2012, respectively. +Market Trends +Globally, sales of molecular +components are growing at a faster pace than immunoassay components, and this is consistent with our business. Geographic expansion is a significant strategy for our Life Science segment, along with further penetration into industrial markets with +our molecular products. +Competition +The +market for bulk biomedical reagents is highly competitive. Important competitive factors include product quality, price, customer service, and reputation. We face competitors, many of which have greater financial, research and development, sales and +marketing, and manufacturing resources, and where sole-source supply arrangements do not exist. From time to time, customers may choose to manufacture their biomedical reagents in-house rather than purchase from outside vendors such as Meridian. +The academic/research market is highly fragmented. Individual purchases are typically of small quantities. The breadth of product offerings, quality, +price and service, including on-line capabilities and technical resources, are important factors to building customer loyalty and repeat purchases. +The +market for contract manufacturing in a validated cGMP facility, such as our Memphis facility, is also competitive. Important competitive factors include reputation, customer service and price. Although the product application for this facility was +built from our existing expertise in cell culture manufacturing techniques, we face competitors with greater experience in contract manufacturing in a clinical cGMP environment. +Research and Development +Research and development +expenses for our Life Science segment for fiscal 2014, 2013 and 2012 were approximately $3,000, $3,000 and $2,000, respectively. This research and development organization is heavily involved in vaccine development and production activities for our +cGMP facility and development of new molecular products. +- 14 - +Table of Contents +Manufacturing and Government Regulation +Our Life Science facilities are ISO 9001:2008 certified, and where appropriate, comply with Regulation EC 1069:2009. +The cGMP clinical grade proteins that are produced in our Memphis facility are intended to be used as “injectibles,” and, as such, they are produced +under cGMP Regulations for Biologics and Human Drugs under the auspices of the FDA. Following clinical trials, approval and licensing of these products is the responsibility of the applicant, who owns the rights to each protein. Typically, the +customer is the applicant, not Meridian Life Science. +Acquisitions +Acquisitions have played an important role in the growth of our businesses. Our acquisition objectives include, among other things, (i) enhancing product +offerings; (ii) improving product distribution capabilities; (iii) providing access to new markets; and/or (iv) providing access to key biologicals or new technologies that lead to new products. Although we cannot provide any +assurance that we will consummate any additional acquisitions in the future, nor can we provide any assurance that any acquisitions will accomplish these objectives, we expect that the potential for acquisitions will continue to provide +opportunities for revenues and earnings growth in the future. +International Markets +International markets are an important source of revenues and future growth opportunities for both of our segments. For both segments combined, revenues from +customers located outside of North America approximated $55,000 or 29% of consolidated fiscal 2014 revenues, $54,000 or 29% of consolidated fiscal 2013 revenues and $53,000 or 31% of consolidated fiscal 2012 revenues. We expect to continue to look +to international markets as a source of new revenues and growth in the future. +Environmental +We are a conditionally exempt, small quantity generator of hazardous waste and have a U.S. EPA identification number. We are in compliance with applicable +portions of the federal and state hazardous waste regulations and have never been a party to any environmental proceeding. +- 15 - +Table of Contents \ No newline at end of file diff --git a/raw/filings/0000794172/2014/0001193125-14-428676/item13.txt b/raw/filings/0000794172/2014/0001193125-14-428676/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..a8a01f1af25ec4471b108107f7006f23d1a76b45 --- /dev/null +++ b/raw/filings/0000794172/2014/0001193125-14-428676/item13.txt @@ -0,0 +1,3 @@ +Item 13 +Certain Relationships and Related Transactions, and Director Independence +74 \ No newline at end of file diff --git a/raw/filings/0000794172/2014/0001193125-14-428676/item9a.txt b/raw/filings/0000794172/2014/0001193125-14-428676/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..952687530cfadaf8d521607c2996107dd6007acd --- /dev/null +++ b/raw/filings/0000794172/2014/0001193125-14-428676/item9a.txt @@ -0,0 +1,9 @@ +ITEM 9A. +CONTROLS AND PROCEDURES +As of +September 30, 2014, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our +disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure +controls and procedures were effective as of September 30, 2014. There have been no changes in our internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the fourth fiscal +quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other factors that could significantly affect internal control subsequent to September 30, 2014. +Our internal control report is included in this Annual Report on Form 10-K after Item 8, under the caption “Management’s Report on Internal +Control over Financial Reporting.” \ No newline at end of file diff --git a/raw/filings/0000794172/2014/0001193125-14-428676/rp_note.txt b/raw/filings/0000794172/2014/0001193125-14-428676/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000794172/2018/0001193125-18-337257/filing.txt b/raw/filings/0000794172/2018/0001193125-18-337257/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..926508ac6f24edf0452bbcec64c5dbff4640154f --- /dev/null +++ b/raw/filings/0000794172/2018/0001193125-18-337257/filing.txt @@ -0,0 +1,4509 @@ +10-K +1 +d621584d10k.htm +FORM 10-K +Form 10-K +Table of Contents +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. 20549 +FORM 10-K +FOR ANNUAL +AND TRANSITION REPORTS +PURSUANT TO SECTIONS 13 OR 15(d) +OF THE SECURITIES EXCHANGE ACT OF 1934 +☒ +ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2018. +☐ +TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 +FOR THE TRANSITION PERIOD FROM +TO +Commission File No. 0-14902 +MERIDIAN BIOSCIENCE, INC. +3471 River +Hills Drive +Cincinnati, Ohio 45244 +IRS Employer ID No. 31-0888197 +Incorporated under the Laws of Ohio +Phone: (513) 271-3700 +Securities Registered Pursuant to Section 12(b) of the Act: +Title of each class +Name of each exchange of which +registered +Common Shares, No Par Value +The NASDAQ Stock Market LLC +(NASDAQ Global Select 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. YES ☐ NO ☒ +If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or +15(d) of the Securities Exchange Act. YES ☐ NO ☒ +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, and (2) has been subject to such filing requirements for the past 90 +days. YES ☒ NO ☐ +Indicate by check mark whether the registrant has +submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period +that the registrant was required to submit such files). YES ☒ NO ☐ +Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation 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. ☒ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See 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 filer +☐ +Non-accelerated filer +☐ +Smaller reporting company +☐ +Emerging growth company +☐ +Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). YES ☐ NO ☒ +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 +Act. ☐ +The aggregate market value of Common Shares held by non-affiliates as of March 31, +2018 was $592,033,599 based on a closing sale price of $14.20 per share on March 31, 2018. As of October 31, 2018, 42,402,912 no par value Common Shares were issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of +the registrant’s proxy statement to be filed with the Commission for its 2019 Annual Shareholders’ Meeting are incorporated by reference in Part III as specified. +Table of Contents +MERIDIAN BIOSCIENCE, INC. +INDEX TO ANNUAL REPORT +ON FORM 10-K +Page +Part I +Item 1 +Business +5 +Item 1A +Risk Factors +14 +Item 1B +Unresolved Staff Comments +26 +Item 2 +Properties +26 +Item 3 +Legal Proceedings +27 +Item 4 +Mine Safety Disclosures +28 +Part II +Item 5 +Market for Registrant’s Common Equity, Related Stockholder Matters and +Issuer Purchases of Equity Securities +29 +Item 6 +Selected Financial Data +30 +Item 7 +Management’s Discussion and Analysis of Financial Condition and Results +of Operations +31 +Item 7A +Quantitative and Qualitative Disclosures about Market Risk +47 +Item 8 +Financial Statements and Supplementary Data +48 +Item 9 +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +80 +Item 9A +Controls and Procedures +80 +Item 9B +Other Information +80 +Part III +Item 10 +Directors, Executive Officers and Corporate Governance +81 +Item 11 +Executive Compensation +81 +Item 12 +Security Ownership of Certain Beneficial Owners and Management and Related +Stockholder Matters +81 +Item 13 +Certain Relationships and Related Transactions, and Director Independence +81 +Item 14 +Principal Accountant Fees and Services +81 +Item 15 +Exhibits and Financial Statement Schedules +82 +Item 16 +Form 10-K Summary +85 +FORWARD-LOOKING STATEMENTS +This Annual Report on Form 10-K contains forward-looking statements. The Private Securities Litigation Reform Act of +1995 provides a safe harbor from civil litigation for forward-looking statements accompanied by meaningful cautionary statements. Except for historical information, this report contains forward-looking statements within the meaning of +Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which may be identified by words such as “estimates”, “anticipates”, “projects”, +“plans”, “seeks”, “may”, “will”, “expects”, “intends”, “believes”, “should” and similar expressions or the negative versions thereof and which also may be identified by +their context. All statements that address operating performance or events or developments that Meridian expects or anticipates will occur in the future, including, but not limited to, statements relating to per share diluted earnings and revenue, +are forward-looking statements. Such statements, whether expressed or implied, are based upon current expectations of the Company and speak only as of the date made. Specifically, Meridian’s forward-looking statements are, and will be, based on +management’s then-current views and assumptions regarding future events and operating performance. Meridian assumes no obligation to publicly update or revise any forward-looking statements even if experience or future changes make it clear +that any projected results expressed or implied therein will not be realized. These statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially, including, without limitation, the +following: Meridian’s operating results, financial condition and continued growth depends, in part, on its ability to introduce into the marketplace enhancements of existing products or new products that incorporate technological advances, meet +customer requirements and respond to products developed by Meridian’s competition, its ability to effectively sell such products and its ability to successfully expand and effectively manage increased sales and marketing operations. While +Meridian has introduced a number of internally developed products, there can be no assurance that it will be successful in the future in introducing such products on a timely basis or in protecting its intellectual property, and unexpected or costly +manufacturing costs associated with the ramp up of new products could cause actual results to differ from expectations. Meridian relies on proprietary, patented and licensed technologies. As such, the Company’s ability to protect its +intellectual property rights, as well as the potential for intellectual property litigation, would impact its results. Ongoing +Table of Contents +consolidations of reference laboratories and formation of multi-hospital alliances may cause adverse changes to pricing and distribution. Recessionary pressures on the economy and the markets in +which our customers operate, as well as adverse trends in buying patterns from customers, can change expected results. Costs and difficulties in complying with laws and regulations, including those administered by the United States Food and Drug +Administration, can result in unanticipated expenses and delays and interruptions to the sale of new and existing products, as can the uncertainty of regulatory approvals and the regulatory process. The international scope of Meridian’s +operations, including changes in the relative strength or weakness of the U.S. dollar and general economic conditions in foreign countries, can impact results and make them difficult to predict. One of Meridian’s growth strategies is the +acquisition of companies and product lines. There can be no assurance that additional acquisitions will be consummated or that, if consummated, will be successful and the acquired businesses will be successfully integrated into Meridian’s +operations. There may be risks that acquisitions may disrupt operations and may pose potential difficulties in employee retention, and there may be additional risks with respect to Meridian’s ability to recognize the benefits of acquisitions, +including potential synergies and cost savings or the failure of acquisitions to achieve their plans and objectives. Meridian cannot predict the outcome of goodwill impairment testing and the impact of possible goodwill impairments on +Meridian’s earnings and financial results. Meridian cannot predict the possible impact of U.S. health care legislation enacted in 2010 – the Patient Protection and Affordable Care Act, as amended by the Health Care and Education +Reconciliation Act – and any modification or repeal of any of the provisions thereof initiated by Congress or the presidential administration, and any similar initiatives in other countries on its results of operations. Efforts to reduce the +U.S. federal deficit, breaches of Meridian’s information technology systems, trade wars, increased tariffs, and natural disasters and other events could have a materially adverse effect on Meridian’s results of operations and revenues. In +the past, the Company has identified a material weakness in our internal control over financial reporting, which has been remediated, but the Company can make no assurances that a material weakness will not be identified in the future, which if +identified and not properly corrected, could materially adversely affect our operations and result in material misstatements in our financial statements. In addition to the factors described in this paragraph, as well as those factors identified +from time to time in our filings with the Securities and Exchange Commission, Part I, Item 1A Risk Factors of this Annual Report on Form 10-K contains a list and description of uncertainties, risks and other +matters that may affect the Company. Readers should carefully review these forward-looking statements and risk factors and not place undue reliance on our forward-looking statements. +Table of Contents +PART I. +This Annual Report on Form 10-K includes forward-looking statements about our business and results of operations that +are subject to risks and uncertainties. See “Forward-Looking Statements” above. Factors that could cause or contribute to such risks and uncertainties include those discussed in Item 1A. “Risk Factors.” In addition to the risk +factors discussed herein, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these risks and uncertainties develops into actual events, our business, financial +condition or results of operations could be adversely affected. +Unless the context requires otherwise, references in this Annual Report on Form 10-K to “Meridian,” “we,” “us,” “our,” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries. +In the discussion that follows, all dollar amounts and share amounts are in thousands (both tables and text), except per share data. +This Annual Report on Form 10-K refers to trademarks such as +Alethia ™ , Curian ™ , Immuno Card ® , Immuno Card STAT! ® , LeadCare ® , MyTaq ™ , PREMIER ® , and SensiFAST ™ , which are protected under applicable intellectual property laws and are our property. Solely for convenience, our +trademarks and tradenames referred to in this Form 10-K may appear without the ® or ™ +symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames. Our molecular diagnostic test platform, formerly known under the +tradenames illumi gene and illumi pro , is being rebranded under the tradename Alethia. References to Alethia throughout this Annual Report on Form 10-K refer to our +molecular diagnostic tests and instrumentation formerly marketed and sold under the illumi gene and illumi pro brands. +ITEM 1. +BUSINESS +Overview +Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic +test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and +bioresearch reagents used by other diagnostic manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. The Company was incorporated in Ohio in 1976. Our principal corporate offices +are located near Cincinnati, Ohio, USA. +- 5 - +Table of Contents +Our website is www.meridianbioscience.com . We make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and any amendments thereto, free of charge through +this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site containing these filings and other +information regarding Meridian at www.sec.gov . The information on our website is not and should not be considered part of this Annual Report on Form 10-K. +Reportable Segments +Our reportable segments are +Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. Detailed information related to the reportable segments can be found in the following locations within this Annual Report on Form +10-K: +Type of Segment Information +Location within Annual Report on +Form 10-K +Physical locations and activities +Item 2. “Properties” +Revenue by geographic region +Item 7. “Management’s Discussion and Analysis of Financial Condition & Results of Operations” (hereafter “MD&A”) +Financial information +Note 9 of Consolidated Financial Statements +Diagnostics Segment +Overview of Products and Markets +Our largest +source of revenues is clinical diagnostic products, with our Diagnostics segment providing 70% of consolidated net revenues for fiscal 2018. As of September 30, 2018, our Diagnostics segment had approximately 400 employees in seven countries. +Our clinical diagnostic products provide accuracy, simplicity and speed; enable early diagnosis and treatment of common, acute medical conditions; and +provide for better patient outcomes at reduced costs. We target diagnostics for disease states that: (i) are conditions where rapid diagnosis impacts patient outcomes; (ii) have opportunistic demographic and disease profiles; +(iii) are underserved by current diagnostic products; and/or (iv) have difficult sample handling requirements (e.g., stool). This approach has allowed us to establish significant market share in our target disease states, gastrointestinal +and respiratory illnesses, and tests for elevated lead levels in blood. +- 6 - +Table of Contents +Our clinical diagnostic products span a broad menu of testing platforms and technologies, and also include +transport media that store and preserve specimen samples from patient collection to laboratory testing. Our testing platforms include: +• +Isothermal DNA Amplification (Alethia brand, formerly illumi gene ) – high +sensitivity, molecular platform that is suitable for virtually any moderately-complex laboratory, whether centralized or decentralized; provides flexibility to process from 1 to 10 tests per run in generally under one hour; and requires no batching +of samples. +• +Rapid Immunoassay (Immuno Card and Immuno Card STAT! brands) +– single-use immunoassays that have fast turnaround times (generally under 20 minutes); and can reduce expensive send-outs for hospitals and outpatient clinics. +• +Enzyme-linked Immunoassay (PREMIER brand) – batch immunoassay +platform that can process up to 96 tests per run; is highly accurate and economical; and is adaptable to automation. +• +Anodic Stripping Voltammetry (LeadCare brand) – electrical chemical sensor platform for quantitative +determination of lead levels in blood. +Our clinical diagnostic products are comprised of products used principally in the detection of +infectious diseases caused by various bacteria, viruses, parasites and pathogens, along with the LeadCare brand of tests for quantitative determination of blood lead levels. These products are grouped into the following product families: +Gastrointestinal Assays +Includes tests for the following, among others: C. difficile , Enterohemorrhagic E. coli , Campylobacter jejuni (Campy), +H. pylori, Cryptosporidium , giardia lamblia, and calprotectin . +Respiratory Illness Assays +Includes tests for the following, among others: Group A Streptococcus (strep throat), Influenza, M. pneumoniae (Mycoplasma), +Bordetella pertussis (whooping cough), and respiratory syncytial virus (RSV). +Blood Chemistry Assays +Tests for elevated lead levels in blood. +Other Assays +Includes +tests for the following, among others: Group B Streptococcus , Chlamydia trachomatis , Neisseria gonorrhea , Herpes Simplex Virus Type 1 & Type 2, and Malaria. +Our product portfolio includes over 140 diagnostic tests and transport media, and is marketed to acute care hospitals, reference laboratories, outpatient +clinics and physician office laboratories in over 70 countries around the world. +- 7 - +Table of Contents +Our current research and development pipeline for immunoassay products includes a new instrument that +utilizes fluorescent chemistry, which improves workflow and test result readability. This new platform is being branded under the “Curian” name. During fiscal 2019, we expect to submit a 510(k) to the FDA for one or more rapid +immunoassay tests for use with the Curian instrument. We expect to develop additional rapid immunoassay tests for use with the Curian instrument beyond 2019. Our current research and development pipeline for molecular products includes a combination +test for the detection of H. pylori and the resistance of one or more antibiotics. Our congenital cytomegalovirus (CMV) test is currently awaiting FDA 510(k) clearance. +Market Trends +The global market for infectious +disease tests continues to expand as new disease states are identified, new therapies become available, and worldwide standards of living and access to health care improve. More importantly, within this market, there is a continuing shift from +conventional testing, which requires highly trained personnel and lengthy turnaround times for test results, to more technologically advanced testing, which can be performed by less highly trained personnel and completed in minutes or hours. +The growing global pressures to contain total health care costs have accelerated the increased use of diagnostic testing. With rapid and accurate diagnoses of +infectious diseases, physicians can pinpoint appropriate therapies quickly, leading to faster recovery, shorter hospital stays and lower overall treatment cost. Integrated Delivery Networks (“IDNs”) in our U.S. market have the goal of +increasing the efficiency of health care delivery, reducing spending and improving clinical outcomes. We believe our product portfolio positions us competitively with IDNs and health care systems that are transitioning from fee-for-service compensation models to value-based reimbursement. Our C. difficile , Group B Streptococcus , Group A Streptococcus and H. pylori +products are all examples of how a highly accurate diagnostic test on the front end can mitigate or reduce down-stream costs of antibiotic use, symptom-relieving drugs and hospital stays. +We also continue to see aggregation of buying power in our U.S. market via multi-hospital group purchasing organizations and IDNs, consolidation among +reference laboratories, hospital laboratories being operated by large reference laboratories, and acquisition of physician practices by hospitals, health systems and for-profit specialty health care companies. +Cost containment pressures have also affected health care systems outside the U.S., particularly in Europe, where the health care systems are generally government-run. The level of government budget deficits can have an adverse effect on the amount of government health care spend. +- 8 - +Table of Contents +Sales, Marketing and Distribution +Our Diagnostics segment’s sales and distribution network consists of the following for each of the broad geographic regions we serve: +Americas +In the +Americas, our sales and distribution network consists of a direct sales force complemented by independent distributors. The use of independent distributors allows our products to reach any size health care facility and also provides our customers +the option to purchase our products directly from Meridian or through an authorized distributor. Two independent distributors accounted for 10% or more of consolidated revenues in fiscal 2018, 2017 and 2016: Cardinal Healthcare Corporation +(“Cardinal”) and Thermo Fisher Scientific (“Fisher”). Our Diagnostics segment revenues from Cardinal were approximately $21,000, $22,000 and $20,000 during fiscal 2018, 2017 and 2016, respectively. Our Diagnostics segment +revenues from Fisher were approximately $22,000, $18,000 and $20,000 during fiscal 2018, 2017 and 2016, respectively. +EMEA +In Europe, the Middle East and Africa (“EMEA”), our sales and distribution network consists of direct sales personnel in Belgium, +France and Italy, and independent distributors in other European countries, Africa and the Middle East. We maintain a distribution center near Milan, Italy. +ROW +With the exception +of Australia and China, where we utilize direct sales personnel, we utilize independent distributors throughout the rest of the world (“ROW”). +Competition +Our major competitors in molecular +diagnostics are Cepheid (acquired by Danaher) and Becton Dickinson, which have systems with multiple-assay menus. We also face competition in molecular diagnostics, but to a lesser degree, from companies such as Abbott (Alere) and Quidel. +Our major competitors in rapid immunoassay diagnostics are primarily Abbott (Alere) and Quidel. In recent years, companies such as BioMerieux have captured +market share in our gastrointestinal category via multi-plex panel tests. However, since their introduction to the market, payors have begun to raise concerns over reimbursement levels relative to clinical utility. For blood lead testing, we believe +we have the only FDA-cleared, CLIA-waived point-of-care test available commercially. Other blood lead testing systems in use, +marketed by our competitors, include Graphite Furnace Atomic Absorption Spectroscopy, which requires a highly-skilled technician and larger laboratory space to operate, in addition to not being portable or suitable for +point-of-care use. We believe that with the breadth and depth of our product portfolio, we are well positioned for the clinical laboratory. +- 9 - +Table of Contents +Research and Development +Our Diagnostics segment’s research and development organization for infectious disease products is located at our corporate headquarters in Newtown, Ohio, +a suburb of Cincinnati, and has expertise in biochemistry, immunology, mycology, bacteriology, virology, parasitology, and molecular biology. Our blood-chemistry products have a dedicated research and development team in Billerica, Massachusetts. +Our research and development activities are focused on new product and new technology development, new applications for our existing technologies, and improvements to existing products. Research and development efforts may occur in-house or with collaborative partners. We believe that new product development is a key source for sustaining revenue growth. The products within our Alethia molecular platform, H. pylori product family and +blood lead testing family were developed solely in-house, or substantially so. See “Operating Expenses” section within MD&A on page 39. +Manufacturing +Our immunoassay and molecular assay +products require the production of highly specialized reagents, primers and enzymes. We produce the vast majority of our own immunoassay requirements. Primers for our Alethia molecular assay products are purchased from outside vendors. Our blood +lead testing products require the production of electrical chemical sensors, which we manufacture using critical raw materials purchased from outside vendors. We believe that we have sufficient manufacturing and sourcing capacity for anticipated +growth over the next several years. +Intellectual Property, Patents and Licenses +We own or license U.S. and foreign patents, most of which are for select products manufactured by our Diagnostics segment. These patents are used in our +manufacturing processes for select products (e.g., method patents) or may relate to the design of the test device technology format (e.g., design patents). In the absence of patent protection, we may be vulnerable to competitors who successfully +replicate our production and manufacturing technologies and processes. Our employees are required to sign confidentiality and non-disclosure agreements designed to protect our proprietary products. +The patents for our Alethia products, which represented 16%, 17% and 20% of consolidated revenues for fiscal 2018, 2017 and 2016, respectively, are licensed +from a third party, Eiken Chemical Co., Ltd., under a non-exclusive license agreement and expire between 2020 and 2022. These patents were issued in the U.S., European Community and other countries. The term +of our license agreement runs until the last patent expires in 2022, at which point we will be free to practice the patents without any restriction or royalty obligation. +- 10 - +Table of Contents +The patents for our H. pylori products, owned by us and which represented approximately 16%, 15% and +16% of consolidated revenues for fiscal 2018, 2017 and 2016, respectively, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our H. pylori products to increase in the near +future, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, +including revenues and gross profit. Our product development pipeline includes new product initiatives for the detection of H. pylori , and we recently entered into a strategic collaboration with DiaSorin to sell H. pylori tests. We +have executed multi-year supply agreements with our two largest reference laboratory customers for H. pylori tests to secure volume, albeit at lower selling prices. We are unable to provide assurances that we will be successful with any +strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +Government Regulation +Our diagnostic products are +regulated by the FDA as “devices” pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). Class I and II +devices are not expressly approved by the FDA, but, instead, are “cleared” for marketing. Class III devices generally must receive “pre-market approval” from the FDA as to safety and +effectiveness. Our diagnostics manufacturing facilities in Cincinnati and Billerica are subject to periodic inspection by the FDA. See page 32 within MD&A for discussion regarding the FDA’s inspection of our Billerica facility. +Each of the diagnostic products currently marketed by us in the United States has been cleared by the FDA pursuant to the 510(k) clearance process or is +exempt from such requirements. We believe that most, but not all, products under development will be classified as Class I or II medical devices and, in the case of most of our Class I and all Class II devices, will be eligible for +510(k) clearance; however, we can make no assurances in this regard. +Sales of our diagnostic products in foreign countries are subject to foreign +government regulation, which is similar to that of the FDA. +Our Diagnostics facilities are certified to ISO 13485:2016. +Seasonal Factors and Sporadic Outbreaks +Our +principal business is the sale of a broad range of clinical diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may +be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak. While we believe that the breadth of our diagnostic product lines reduces the risk that infections subject to seasonality and sporadic +outbreaks will cause significant variability in diagnostic revenues, we can make no assurance that revenues will not be impacted period over period by such factors. +- 11 - +Table of Contents +Life Science Segment +Overview of Products and Markets +Our Life Science +segment focuses on the development, manufacture, sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents used by researchers, agri-bio +companies and other diagnostic manufacturing companies. As of September 30, 2018, our Life Science segment had approximately 185 employees in five countries. +Most of the revenues for our Life Science segment currently come from the manufacture, sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, +nucleotides, competent cells, and bioresearch reagents used by other diagnostic manufacturing companies focused on the development of immunoassay and molecular assay tests. Approximately 76% of Life Science revenues are generated from the industrial +market, defined as diagnostic manufacturers. This continues to be an increasing focus for our molecular reagent products, which historically have been marketed to the academic/research customers that comprise the remaining 24% of Life Science +revenues. We utilize direct sales teams in key countries such as the U.S., the U.K., France, Germany, and Australia. In order to further pursue revenue opportunities in Asia, and China in particular, during fiscal 2017 we established a wholly +foreign owned enterprise (“WFOE”) location in Beijing, China, after having operated a representative office there since fiscal 2015. The WFOE employs a business development staff and imports product for sale to customers in China. We +utilize a network of distributors in other major countries. During fiscal 2018, 18% of third-party revenues for this segment were from two diagnostic manufacturing customers. +Products such as antibodies, antigens and reagents are marketed primarily to diagnostic manufacturing customers as a source of raw materials for their +immunoassay products, or as an outsourced step in their manufacturing processes. For example, we supply a number of major diagnostic manufacturers with proteins used to detect hepatitis A virus and rubella virus. These products are typically sold in +bulk quantities, and may also be custom-designed for a particular manufacturer’s requirements. Sales efforts are focused on multi-year supply arrangements in order to provide stability in volumes and pricing. We believe this benefits both us +and our customers. +Molecular biology products such as PCR/qPCR reagents, nucleotides and competent cells are marketed to academic/research and industrial +customers. These products are used in measuring DNA and RNA in human, animal, plant and environmental applications. These reagents improve the purity, yield and speed of PCR reactions. Products such as MyTaq and SensiFAST are examples of this type +of PCR/qPCR reagent. +Market Trends +As +certain global markets become increasingly accessible to us, most notably the Asia-Pacific region, geographic expansion continues to be a significant strategy for our Life Science segment, along with further penetration into industrial markets with +our molecular component products. +- 12 - +Table of Contents +Competition +The market for bulk biomedical reagents is highly competitive. Important competitive factors include product quality, price, customer service and reputation. +We face competitors, many of which have greater financial, research and development, sales and marketing, and manufacturing resources, and where sole-source supply arrangements do not exist. Customers also may choose to manufacture their biomedical +reagents in-house rather than purchase from outside vendors such as Meridian. +The academic/research market is +highly fragmented. Individual purchases are typically of small quantities. The breadth of product offerings, quality, price and service, including on-line capabilities and technical resources, are important +factors to building customer loyalty and repeat purchases. +Research and Development +The focus of this research and development activity is development of new molecular and immunological reagent products. See “Operating Expenses” +section within MD&A on page 39. +Manufacturing and Government Regulation +Our Life Science facilities are ISO 13485:2016 certified. Additionally, where appropriate, our Life Science facilities comply with Regulation EC 1069:2009. +Acquisitions +Acquisitions have played an important +role in the growth of our businesses. Our acquisition objectives include, among other things: (i) enhancing product offerings; (ii) improving product distribution capabilities; (iii) providing access to new markets; and/or +(iv) providing access to key biologicals or new technologies that lead to new products. Although we cannot provide assurance that we will consummate additional acquisitions in the future, nor can we provide assurance that any acquisitions will +accomplish these objectives, we expect that the potential for acquisitions will continue to provide opportunities for revenue and earnings growth in the future. +During March 2016, we acquired all of the outstanding common stock of Magellan. Details of the Magellan acquisition are set forth in Note 3 of the +accompanying Consolidated Financial Statements. +International Markets +International markets are an important source of revenues and future growth opportunities for both of our segments. For both segments combined, revenues from +customers located outside of the Americas approximated $66,000 or 31% of consolidated fiscal 2018 revenues, $61,000 or 30% of consolidated fiscal 2017 revenues, and $53,000 or 27% of consolidated fiscal 2016 revenues. We expect to continue to look +to key European markets and China as a source of revenue growth in the future. +- 13 - +Table of Contents +Fluctuations in foreign currency exchange rates since fiscal 2017 had an approximate $2,200 favorable impact +on fiscal 2018 revenues; $1,400 within the Diagnostics segment and $800 within the Life Science segment. This compares to year-to-year currency exchange rates having an +approximate $1,200 unfavorable impact on revenues in fiscal 2017; $400 within the Diagnostics segment and $800 within the Life Science segment. Due to natural hedge relationships with expenses, both cost of sales and operating expenses, the overall +impact of exchange rate fluctuations on operating income was not significant during fiscal 2018, 2017 or 2016. +Environmental +We are in compliance with applicable portions of the federal and state hazardous waste regulations and have never been a party to any environmental proceeding. +ITEM 1A. +RISK FACTORS +In addition to the other +information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition, cash flows or future results. Any one of these factors could cause our actual results to vary +materially from recent results or from anticipated future results. The risks described below are not the only risks facing our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also +may materially adversely affect our business, financial condition and/or operating results. +Risks Affecting Growth and Profitability of our Business +We may be unable to develop new products and services or acquire products and services on favorable terms. +The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our +results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and +services that incorporate technological advances, meet customer requirements and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and +services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations. +In addition, we must regularly allocate considerable resources to research and development of new products, services and technologies. The research and +development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we +may have to abandon a product in which we have invested substantial resources. +- 14 - +Table of Contents +We may be unable to successfully integrate operations or to achieve expected cost savings from +acquisitions we make. +One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies +and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional +operating costs, and risk of asset impairments if future revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the +operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to +identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of +goodwill impairments on the Company’s earnings and financial results. +Revenues for our Diagnostics segment may be impacted by our reliance +upon two key distributors in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions. +Key +Distributors +Our Diagnostics segment’s revenues from sales through two U.S. distributors were approximately 29% and 28% of the Diagnostics +segment’s total revenues for fiscal 2018 and fiscal 2017, respectively, or approximately 20% of each fiscal year’s consolidated revenues. These parties distribute our products and other laboratory products to +end-user customers. The loss of either of these distributors could negatively impact our revenues and results of operations unless suitable alternatives were timely found or lost sales to one distributor were +absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. +This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future selling, general +and administrative expenses. +In addition, buying patterns of these two distributors may fluctuate from quarter to quarter, potentially leading to uneven +concentration levels on a quarterly basis. +Seasonal Factors and Sporadic Outbreaks +Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood +lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak. While we believe that the breadth of our diagnostic +product lines reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in diagnostic revenues, we can make no assurance that revenues will not be negatively impacted period over period by such +factors. +- 15 - +Table of Contents +Changing Diagnostic Market Conditions +Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large +reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of group purchasing +organizations (“GPOs”) and IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to enter into and/or sustain contractual or other marketing or +distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and IDNs, which could adversely affect our results of operations. +We could be adversely affected by health care reform legislation. +Third-party payers for medical products and services, including state, federal and foreign governments, are increasingly concerned about escalating health +care costs and can indirectly affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement they will provide for diagnostic testing services. Following years of increasing pressure, during 2010 +the U.S. government enacted comprehensive health care reform with the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, which made changes that significantly impact the +pharmaceutical and medical device industries. The Protecting Access to Medicare Act of 2014 requires applicable laboratories to report all private payor reimbursement rates and the volumes for each test they perform. The statute requires that +Medicare establish reimbursement rates based on the weighted median of private insurance reimbursement rates effective January 1, 2017. The new Medicare rates would be subject to a maximum reduction of 10% a year for the initial three year +period and a maximum of 15% a year for the subsequent three year period. There is no limit on the amount of potential rate increases. As a result, some of our customers in the United States may experience lower Medicare reimbursement rates for our +products, which may adversely affect our business, financial condition and results of operations. We are seeing some effect on the reimbursement rates for our products. If reimbursement amounts for diagnostic testing services decrease further in the +future, such decreases may reduce the amount that will be reimbursed to hospitals or physicians for such services and consequently, could place constraints on the levels of overall pricing, which could have a material effect on our revenues and/or +results of operations. +Having been subject to the now-repealed 2.3% medical device tax originally established as +part of the U.S. health care reform legislation through December 31, 2015, the Company is unable to predict any future legislative changes or developments related to this excise tax or any other excise tax. +- 16 - +Table of Contents +Additional state and federal health care reform measures may be adopted in the future, any of which could +have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the United States government has in the past considered, is currently considering and may in the future consider, +health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public reimbursement for health care services. Further, state and local governments, as well as a number +of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the United States or elsewhere, and current uncertainty about whether and how changes may be implemented, +could have a negative impact on the demand for our products. We are unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what +effect such policies would have on our business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers. +Efforts to reduce the U.S. federal deficit could adversely affect our results of operations. +As part of the Budget Control Act passed in August 2011 to extend the federal debt limit and reduce government spending, $1.2 trillion in automatic spending +cuts (known as sequestration) were implemented in 2013. The sequestration requires a 2% cut in Medicare payments for all services, including our diagnostic tests, which, due to subsequent legislative amendments to the statute, will remain in effect +through 2024 unless Congressional action is otherwise taken. Government research funding has also been reduced as a result of the sequestration. On January 2, 2013, the American Taxpayer Relief Act of 2012 also was signed into law, which, among +other things, further reduces Medicare payments to providers such as hospitals, imaging centers and cancer treatment centers, and increases the statute of limitations period for the government to recover overpayments to providers from three to five +years. +Such reductions in government health care spending or research funding could result in reduced demand for our products or additional pricing +pressure. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S. government default on its debt could have broad +macroeconomic effects that could, among other things, raise our borrowing costs. Any future shutdown of the federal government or failure to enact annual appropriations could also have a material adverse impact on our business. +Revenues for our Life Science segment may be impacted by customer concentrations and buying patterns. +Our Life Science segment’s revenues from two diagnostic manufacturing customers were 18% and 17% of the Life Science segment’s total revenues for +fiscal 2018 and fiscal 2017, respectively; and 5% of our consolidated revenues for each of fiscal 2018 and fiscal 2017. Our Life Science segment has five other significant customers, which together comprised 12% and 10% of the segment’s total +revenues for fiscal 2018 and fiscal 2017, respectively. Any significant alteration of buying patterns from these customers could adversely affect our period over period revenues and results of operations. +- 17 - +Table of Contents +Intense competition could adversely affect our profitability. +The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply +diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small start-up companies. Many of our +competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our +competitors. +We expect to face increased competition resulting from expiration of our H. pylori patents. +The patents for our H. pylori products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect +competition with respect to our H. pylori products, high margin products which represent approximately 16% of our total revenues, to increase in the near future, as we currently are one of only four companies that market FDA-cleared tests to detect H. pylori antigen in stool samples in the U.S. market, one of which is DiaSorin Inc., with whom we recently entered a collaboration agreement to sell H. pylori tests. At +present, we are also aware of at least one other company that has commenced clinical trials of H. pylori products in the U.S. Such competition may have an adverse impact on our selling prices for these products, or our ability to retain +business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. Therefore, among other things, we have entered into the above-noted collaboration agreement +with DiaSorin, and we are researching and experimenting with new products and working to secure significant customers under long-term contracts. We are unable to provide assurances that we will be successful with any strategy or that any strategy +will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +We depend on international +revenues, and our financial results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets. +We sell products and services into approximately 70 countries. Approximately 31% and 30% of our net revenues for fiscal 2018 and 2017, respectively, were +attributable to markets outside of the Americas. For fiscal 2018, approximately 20% of our consolidated revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates +for the Australian dollar, British pound, Chinese yuan and Euro. We are also subject to other risks associated with international operations, including longer customer payment cycles, trade wars, increased tariffs, requirements for export licenses, +instability of foreign governments, and governmental requirements with respect to the importation and distribution of medical devices and immunodiagnostic and molecular biology reagents, all of which may vary by country. +- 18 - +Table of Contents +Risks Affecting our Manufacturing Operations +We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations. +Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or +approvals, or timely clearances or approvals, to market future products in the United States and other countries. Costs and difficulties in complying with laws and regulations administered by the U.S. Food and Drug Administration, the U.S. +Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control, or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing +products. +Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and costs of approvals difficult to predict. Failure +to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to manufacture or sell products, and other civil or criminal sanctions. +If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be +subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted. +Our +diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”) which +sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell. The FDA may evaluate our +compliance with the QSR, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the +manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 +that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the +facility’s written response and may re-inspect to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions +to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers +the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. +FDA enforcement +actions, which include seizure, injunction and criminal prosecution, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product +applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and +could have an adverse effect on our production, sales and profitability. +- 19 - +Table of Contents +We and any of our third-party vendors may also encounter other problems during manufacturing including +failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our +business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the +manufacture of the product, or any of its components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our +business, financial condition and results of operations. +On June 29, 2017, the FDA, in connection with its Safety Notification related to +Magellan’s lead testing systems for venous blood samples, issued its Form 483, Inspectional Observations, to Magellan. This was followed by the FDA issuing a Warning Letter related to the matter on October 23, 2017. While we remain +committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA. +Additionally, as set forth in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena from the United States Department of +Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we are cooperating with the DOJ in this matter. We maintain rigorous policies and procedures to promote compliance with applicable +regulatory agencies and requirements, and are working with the DOJ to promptly respond to the subpoena. However, we cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on Meridian. +See a more detailed discussion of these matters within MD&A on page 32. +Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our +business and operating results. +Products and services manufactured at facilities we own or lease comprised a majority of our revenues. Our global +supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and +product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we +carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any +significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities could materially and adversely affect our operating results. +- 20 - +Table of Contents +We depend on sole-source suppliers for certain critical raw materials, components and finished +products. A supply interruption could adversely affect our business. +Raw Materials and Components +Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple +sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components in FDA-cleared products. If certain suppliers fail to +supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there +is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained. +We utilize third-party manufacturers for our +instrumentation. One third party manufactures our proprietary Alethia Incubator/Reader (instrument), a component of our Alethia molecular system, and a separate third party currently assembles our proprietary LeadCare instruments. Upon +commercialization in fiscal 2019, an additional third party will manufacture our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments +are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the United States. If these third-party manufacturers fail to supply us with instruments, we will need to +secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instruments could have a material adverse effect on our operating results. +Additionally, one third party manufactures a certain reagent for use with our Alethia assays. While alternative suppliers exist, we elect to utilize this +third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our operating +results. +Finished Products +We outsource the +manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturing in-house. +Four products manufactured exclusively for us by two separate and independent companies +accounted for 11%, 11% and 12% of consolidated revenues in fiscal 2018, 2017 and 2016, respectively. Meridian owns all rights and title to the FDA 510(k) clearances for these products. +- 21 - +Table of Contents +Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining +adequate inventory levels, supplier qualification procedures, supplier audits, site visits, and frequent communication. Additionally, we have identified potential alternate suppliers. +Risks Related to Intellectual Property and Product Liability +We may be unable to protect or obtain proprietary rights that we utilize or intend to utilize. +In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to +continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or +from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses or proprietary or patented technologies in the future. +See Item 3. “Legal Proceedings” for a discussion of the status of certain litigation related to our intellectual property. +Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products. +Litigation over intellectual property rights is prevalent in the diagnostic industry. As the market for diagnostics continues to grow and the number of +participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual +property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to +sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse +effect on our business. +If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to +limit or cease sales of our products. +The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of +product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We currently carry product liability insurance at a +level we believe is commercially reasonable, although there is no assurance that it will be adequate to cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related to our +products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defect in the design or manufacture of our products could have a material adverse effect +on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our +reputation in the industry could have a material adverse effect on our business. +- 22 - +Table of Contents +Other Risks Affecting Our Business +Our business could be negatively affected if we are unable to attract, hire and retain key personnel. +Our future success depends on our continued ability to attract, hire and retain highly qualified personnel, including our executive officers and scientific, +technical, sales and marketing employees, and their ability to manage growth successfully. If such key employees were to leave and we were unable to obtain adequate replacements, our operating results could be adversely affected. +Our bank credit agreements impose restrictions with respect to our operations. +Our bank credit agreements contain a number of financial covenants that require us to meet certain financial ratios and tests. If we fail to comply with the +obligations in the credit agreements, we would be in default under the credit agreements. If an event of default is not cured or waived, it could result in acceleration of any indebtedness under our credit agreements, which could have a material +adverse effect on our business. At September 30, 2018, we have $50,250 outstanding on a five-year term loan entered into in connection with the Magellan acquisition and no borrowings are outstanding under our $30,000 bank revolving credit +facility. +We face risks related to global economic conditions. +We currently generate significant operating cash flows, which combined with access to the credit markets, provides us with discretionary funding capacity for +research and development and other strategic activities. However, as an enterprise with global operations and markets, our operations and financial performance are in part dependent upon global economic conditions, and we could be negatively +impacted by a global, regional or national economic crisis, including sovereign risk in the event of deterioration in the credit worthiness of or a default by local governments. We are particularly susceptible to the economic conditions in countries +where government-sponsored health care systems are the primary payers for health care, including those countries within the European Union that are reducing their public expenditures in an effort to achieve cost savings. The uncertainty in global +economic conditions poses a risk to the overall economy that could impact demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. As +such, if global economic conditions deteriorate significantly, our business could be negatively impacted, including such areas as reduced demand for our products from a slow-down in the general economy, supplier or customer disruptions resulting +from tighter credit markets, and/or temporary interruptions in our ability to conduct day-to-day transactions through our financial intermediaries involving the payment +to or collection of funds from our customers, vendors and suppliers. While to-date such factors have not had a significant negative impact on our results or operations, we continue to monitor and plan for the +potential impact of these global economic factors. +- 23 - +Table of Contents +While the impact of the United Kingdom’s planned separation from the European Union (commonly referred +to as “Brexit”), a final agreement on which is expected in the very near future, remains uncertain, the resulting immediate changes in foreign currency exchange rates have had a limited overall impact due to natural hedging. However, any +predicted deterioration in the United Kingdom and European economic outlook may have an adverse effect on revenue growth, but the extent of such effect cannot yet be quantified. In the longer term, it is possible that we will be directly impacted in +a number of key areas including, without limitation, the hiring and retention of qualified staff, regulatory affairs, manufacturing, logistics, and increased tariffs. We are closely monitoring the Brexit developments in order to determine, quantify +and proactively address changes as they become clear. Despite the Brexit developments, we do not expect macroeconomic conditions to have a significant impact on our liquidity needs, financial condition or results of operations, although no +assurances can be made in this regard. We intend to continue to fund our working capital requirements and dividends from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through +our $30,000 bank revolving credit facility. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the +collectability of our customer accounts receivable or impact credit terms with our vendors, or disrupt the supply of raw materials and services. +Breaches of our information technology systems could have a material adverse effect on our operations. +We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The secure processing, maintenance and transmission of this information is critical to our operations. Like many multinational corporations, our information technology systems may be +subjected to computer viruses or other malicious codes, unauthorized access attempts, and cyber- or phishing-attacks. We also store certain information with third parties that could be subject to these types of attacks. Any such breach could +compromise our networks, and the information stored therein could be accessed, publicly disclosed, lost or stolen. Such attacks could result in our intellectual property and other confidential information being lost or stolen, disruption of our +operations, and other negative consequences, such as increased costs for security measures or remediation costs, and diversion of management attention. Any such access, disclosure or other loss of information could result in legal claims or +proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption of our operations, damage to our reputation, and/or cause a loss of confidence in our products and services, all of which could +adversely affect our business revenues and competitive position. While we will continue to implement additional protective measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent, and the +techniques used in such attacks change rapidly. There can be no assurances that our protective measures will prevent attacks that could have a significant impact on our business. +Natural disasters, war and other events could adversely affect our future revenues and operating income. +Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the United States and other +governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the United States and in areas outside of the United States in which we operate. These +events could result in decreased demand for our products, adversely affect our manufacturing and distribution capabilities, or increase the costs for, or cause interruptions in, the supply of materials from our suppliers. +- 24 - +Table of Contents +Risks Related to Our Common Stock +Material weaknesses in our internal control over financial reporting could be identified, which if not properly corrected, could materially adversely +affect our operations and result in material misstatements in our financial statements. +During fiscal 2017, the Company identified a material +weakness in internal control over financial reporting, which has been remediated. However, the Company can make no assurances that a material weakness will not be identified in the future or that, if identified, it will be properly corrected. In the +event we are unable to remediate a material weakness identified in the future, we may be unable to provide holders of our securities with required financial information in a timely and reliable manner, and we may incorrectly report financial +information. Either of these events could have a material adverse effect on our operations, investor, supplier and customer confidence in our reported financial information and/or the trading price of our common stock. +Additional stock issuance authorizations. +Our +board of directors has the authority to issue up to 1,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of such shares without any future vote or action by the +shareholders. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company +that have not been negotiated with the board of directors. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, sales of substantial amounts of shares in the public +market could adversely affect the market price of our common stock and our ability to raise additional capital at a price favorable to us. +The +market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation. +The market price of our common stock may be subject to significant fluctuations due to numerous factors, including but not limited to the risks described in +this “Risk Factors” section. In addition, the stock market in general, The NASDAQ Global Market and the market for diagnostics companies in particular may experience a loss of investor confidence. A loss of investor confidence may result +in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, our financial condition or results of operations. These broad market and industry factors may +materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could +further materially harm our financial condition and results of operations. +- 25 - +Table of Contents +There can be no assurance that we will continue to pay dividends. +The declaration, amount and timing of the Company’s dividends are subject to capital availability and determinations by our board of directors that cash +dividends are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the declaration and payment of cash dividends. Our continuing ability to pay dividends will depend upon, among +other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, results of operations, financial condition and other factors beyond our control that our board +of directors may deem relevant. A reduction in or elimination of our dividend payments, or our dividend program could have a negative effect on our stock price. +ITEM 1B. +UNRESOLVED STAFF COMMENTS +None. +ITEM 2. +PROPERTIES +Our corporate offices, +infectious disease Diagnostics manufacturing facility, and infectious disease Diagnostics research and development facility are located in five buildings totaling approximately 120,000 square feet on 10 acres of land in the Village of Newtown, a +suburb of Cincinnati, Ohio. These properties are owned by us. Our blood-chemistry manufacturing and research and development operations are located in an approximately 30,000 square foot leased facility in Billerica, Massachusetts. We also operate a +Diagnostics sales and distribution center near Milan, Italy in an approximately 18,000 square foot building. This facility is owned by our wholly-owned Italian subsidiary, Meridian Bioscience Europe s.r.l. We also rent office space in Paris, France +and Braine-l’Alleud, Belgium for sales and administrative functions. +Our Life Science operations are +conducted in several facilities in Memphis, Tennessee; Boca Raton, Florida; London, England; Luckenwalde, Germany; Sydney, Australia; and Beijing, China. Our facility in Memphis, Tennessee consists of two buildings totaling approximately 44,000 +square feet and is owned by us. Our leased facility in Boca Raton, Florida contains approximately 7,500 square feet of manufacturing space. Following are details of our other Life Science facilities, all of which are leased: London – +approximately 21,000 square feet of sales, warehouse, distribution, research and development, manufacturing and administrative office space; Luckenwalde – approximately 10,000 square feet of sales, warehouse and manufacturing space; Sydney +– approximately 5,000 square feet of sales and warehouse space; Beijing – less than 1,000 square feet of sales and business development space. +- 26 - +Table of Contents +ITEM 3. +LEGAL PROCEEDINGS +We are a party to +various litigation matters that we believe are in the normal course of business. Aside from the matters discussed below, the ultimate resolution of these matters is not expected to have a material adverse effect on our financial position, results of +operations or cash flows, and no material provision has been made in the accompanying Consolidated Financial Statements for these matters. +On +November 15, 2017, Barbara Forman filed a class action complaint in the United States District Court for the Southern District of Ohio naming Meridian, its Chief Executive Officer and Chief Financial Officer (in their capacities as such) as +defendants. An amended complaint was filed on April 16, 2018 and the Company believes the essential elements of the amended complaint are the same. The complaint and the amended complaint are hereafter referred to as the “Complaint”. +The Complaint seeks compensatory damages and attorneys’ fees. Meridian has filed a motion to dismiss the Complaint, to which the plaintiff responded on August 14, 2018. The motion has been fully briefed and remains pending before the +court. We are unable to determine or predict the ultimate outcome or estimate the range of possible losses, if any. Accordingly, no provision for litigation losses has been included within the accompanying Consolidated Statement of Operations for +fiscal 2018 or 2017. +On December 6, 2017, Michael Edelson filed a derivative complaint in the United States District Court for the Southern District +of Ohio naming Meridian, its Chief Executive Officer, Chief Financial Officer and certain members of Meridian’s Board of Directors and Audit Committee (in their capacities as such) as defendants. The complaint alleges that Meridian made false +and misleading representations concerning certain of Magellan’s lead test systems at or around the time of Meridian’s acquisition of Magellan and subsequent thereto, and the complaint alleges that certain members of the Board of Directors +and Audit Committee breached their fiduciary duties in their oversight of the Company’s public disclosures and corporate governance matters. The complaint seeks compensatory damages, equitable relief relating to corporate governance matters and +attorneys’ fees. The case has been stayed by agreement of the parties pending resolution of the motion to dismiss the class action described above. We are unable to determine or predict the ultimate outcome or estimate the range of possible +losses, if any. Accordingly, no provision for litigation losses has been included within the accompanying Consolidated Statement of Operations for fiscal 2018 or 2017. +- 27 - +Table of Contents +Approximately $600 of expense for attorneys’ fees related to the above two class action matters is +included within the accompanying Consolidated Statement of Operations for fiscal 2018. The Company maintains an insurance policy covering these matters, which has a $500 deductible. +On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The +subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements, and is working +with the DOJ to promptly respond to the subpoena. However, the Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $775 of expense for +attorneys’ fees related to this matter is included within the accompanying Condensed Consolidated Statement of Operations for fiscal 2018. +On +October 9, 2018, the Company and DiaSorin Inc. entered into a strategic collaboration to sell DiaSorin’s Helicobacter pylori stool antigen test to detect H. pylori for use on its automated LIAISON platform under the Meridian +brand name worldwide. The new collaboration results in the termination of all pending legal disputes between the two parties and will expand the previous agreement between DiaSorin and Meridian, which focused on the sale, by DiaSorin, of co-developed products in major countries in continental Europe. +ITEM 4. +MINE SAFETY DISCLOSURES +Not applicable. +- 28 - +Table of Contents +PART II. +ITEM 5. +MARKET FOR REGISTRANT’S COMMON +EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Refer to “Forward-Looking Statements” following the Index in front of this Form 10-K and Item 1A +“Risk Factors” on pages 14 through 26 of this Annual Report. +Market Information +Our common stock trades on the NASDAQ Global Select Market under the symbol VIVO. +Holders of our Common Stock +As of +September 30, 2018, there were approximately 635 holders of record and approximately 13,200 beneficial owners of our common shares. +Dividends +“Quarterly Financial Data (Unaudited)” relating to our dividends in Note 11 of the Consolidated Financial Statements are incorporated +herein by reference. +During fiscal 2018 and 2017, the indicated annual cash dividend rate was established at $0.50 per share (down from $0.80 per share +in fiscal 2016). The declaration and amount of dividends will be determined by the board of directors in its discretion based upon its evaluation of earnings, cash flow requirements and future business developments and opportunities, including +acquisitions. At its meeting on November 7, 2018, the board of directors announced a continuation of the $0.50 indicated annual dividend rate per share for fiscal 2019. We paid dividends of $0.50, $0.575 and $0.80 per share in fiscal 2018, 2017 +and 2016, respectively. Except as may otherwise be prohibited by applicable law, there are no restrictions on cash dividend payments. +Stock Total +Return Performance +The following graph shows the yearly percentage change in Meridian’s cumulative total shareholder return on its common +stock as measured by dividing the sum of (A) the cumulative amount of dividends, assuming dividend reinvestment, during the periods presented, and (B) the difference between Meridian’s share price at the end and the beginning of the +periods presented; by the share price at the beginning of the periods presented with the NASDAQ Composite Index and a Peer Group Index. The 2017 Peer Group consists of bioMerieux S.A., Bio-Rad Laboratories, +Inc., GenMark Diagnostics, Inc., IDEXX Laboratories, Inc., Luminex Corporation, Myriad Genetics, Inc., Neogen Corporation, OraSure Technologies, Inc., Quidel Corporation and Trinity Biotech Plc. The 2018 Peer Group consists of bioMerieux S.A., Bio-Rad Laboratories, Inc., GenMark Diagnostics, Inc., Luminex Corporation, Myriad Genetics, Inc., OraSure Technologies, Inc., Quidel Corporation and Trinity Biotech Plc. +- 29 - +Table of Contents +ITEM 6. +SELECTED FINANCIAL DATA +Income Statement Information (Amounts in thousands, except per share data) +For the Year Ended September 30, +2018 +2017 +2016 +2015 +2014 +Net revenues +$ +213,571 +$ +200,771 +$ +196,082 +$ +194,830 +$ +188,832 +Gross profit +130,461 +124,292 +127,212 +121,882 +117,243 +Operating income +31,584 +37,382 +51,378 +56,060 +52,392 +Net earnings +23,849 +21,557 +32,229 +35,540 +34,743 +Basic earnings per share +$ +0.56 +$ +0.51 +$ +0.77 +$ +0.85 +$ +0.84 +Diluted earnings per share +$ +0.56 +$ +0.51 +$ +0.76 +$ +0.85 +$ +0.83 +Cash dividends declared per share +$ +0.500 +$ +0.575 +$ +0.800 +$ +0.800 +$ +0.790 +Book value per share +$ +4.14 +$ +4.02 +$ +3.95 +$ +3.96 +$ +3.87 +Balance Sheet Information +As of September 30, +2018 +2017 +2016 +2015 +2014 +Current assets +$ +139,053 +$ +133,875 +$ +126,791 +$ +119,422 +$ +108,832 +Current liabilities +24,173 +22,887 +22,571 +15,251 +13,735 +Total assets +251,377 +249,777 +252,028 +183,282 +176,929 +Long-term debt obligations +50,180 +54,647 +58,360 +— +— +Shareholders’ equity +175,418 +169,585 +166,472 +165,873 +161,029 +- 30 - +Table of Contents +ITEM 7. +MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL +CONDITION AND RESULTS OF OPERATIONS +Refer to “Forward-Looking Statements” following the Index in front of this Form 10-K and Item 1A +“Risk Factors” on pages 14 through 26 of this Annual Report. +In the discussion that follows, all dollar amounts are in thousands (both +tables and text), except per share data . +Results of Operations : +Fourth Quarter +Net earnings for the fourth quarter +of fiscal 2018 decreased 5% to $5,434, or $0.13 per diluted share, from net earnings for the fourth quarter of fiscal 2017 of $5,726, or $0.13 per diluted share. The fiscal 2018 fourth quarter results include $4,576 of costs associated with the +transition to our new CEO, other restructuring costs and litigation costs (collectively, “restructuring and litigation costs”), along with certain one-time tax effects of the U.S. tax reform act +enacted in December 2017 (combined impact on net earnings of $3,145, or $0.07 per diluted share). The fiscal 2017 fourth quarter results included $762 of restructuring and litigation costs (impact on net earnings of $495, or $0.01 per diluted +share). Consolidated revenues for the fourth quarter of fiscal 2018 totaled $53,100, an increase of 7% compared to the fourth quarter of fiscal 2017, also increasing 7% on a constant-currency basis. +Revenues for the Diagnostics segment for the fourth quarter of fiscal 2018 increased 2% compared to the fourth quarter of fiscal 2017 (also 2% on a +constant-currency basis), comprised of a 6% decrease in molecular assay products and a 5% increase in immunoassay and blood chemistry assay products. With a 9% increase in its molecular reagents products and a 27% increase in its immunological +reagents products, revenues for our Life Science segment increased 19% in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017. On a constant-currency basis, revenues for our Life Science Segment increased 20%. +The fourth quarter revenues reflect improvement in our respiratory illness and blood chemistry assay product lines, being partially offset by decreased +revenues for our gastrointestinal assays. Both Life Science product categories performed well, reflecting continued growth in the Asia-Pacific region and high volume sales to IVD manufacturer customers. +Fiscal Year +Net earnings for fiscal 2018 +increased 11% to $23,849, or $0.56 per diluted share, from net earnings for fiscal 2017 of $21,557, or $0.51 per diluted share. Fiscal 2018 results include $13,051 of restructuring and litigation costs, along with certain one-time tax effects of the U.S. tax reform act enacted in December 2017 (combined impact on net earnings of $7,856, or $0.18 per diluted share). Fiscal 2017 results include $762 of restructuring and litigation +costs, and a $6,628 impairment charge against Diagnostics segment goodwill (combined impact on net earnings of $7,123, or $0.17 per diluted share). Consolidated revenues increased 6% to $213,571 for fiscal 2018 compared to fiscal 2017, increasing 5% +on a constant-currency basis. +- 31 - +Table of Contents +In fiscal 2018, revenues for the Diagnostics segment increased 5% compared to fiscal 2017 (4% on a +constant-currency basis). This increase is comprised of relatively flat revenues for our molecular assay products and a 6% increase in immunoassay and blood chemistry assay products. With a 12% increase in its molecular reagents business and a 9% +increase in its immunological reagents business, revenues of our Life Science segment increased 10% during fiscal 2018 compared to fiscal 2017, increasing 9% on a constant-currency basis. +Update on Lead Testing +We offer multiple lead +testing systems that are capable of processing both capillary and venous blood samples. Our LeadCare Plus and LeadCare Ultra systems, which accounted for approximately 10% of lead testing annual revenues in fiscal 2016, are used predominantly with +venous blood samples. Typically, the Ultra and Plus systems are used in a reference lab setting. Our LeadCare II system is predominantly used with capillary blood samples and is typically used in a physician office setting. LeadCare II system +revenue represented approximately 90% of our lead testing product revenues in fiscal 2016. The LeadCare II system is the only point-of-care system for testing lead +exposure, receiving CLIA-waived status. Other methods for testing blood lead levels include Graphite Furnace Atomic Absorption Spectroscopy and Mass Spectrometry, which are typically performed in hospital and reference laboratory settings. +On May 17, 2017, the FDA issued a field safety notice advising customers to discontinue use of our lead testing systems with venous blood samples. This +field safety notice was followed by product recall notices on May 25 th and June 5 th . Subsequent to the issuances of these field safety and +product recall notices, the FDA completed an inspection of our Quality System for our lead testing manufacturing facility in Billerica, Massachusetts, and issued its Form 483, Inspectional Observations, on June 29, 2017, which was expectedly +followed by a Warning Letter issued on October 23, 2017. During our 2017 third fiscal quarter, it was determined that a potential impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a +“triggering event”). An impairment charge of $6,628, on both a pre-tax and after-tax basis, was recorded during the fiscal 2017 third quarter as set forth in +Note 1(h) “Summary of Significant Accounting Policies – Intangible Assets” of the accompanying Consolidated Financial Statements. +The Warning Letter requires periodic reporting on our remediation progress. To date, we have satisfied our post-Warning Letter reporting requirements with the +FDA. During fiscal 2018 and 2017, we incurred approximately $1,600 in aggregate remediation costs, primarily related to regulatory consultants and studies required to reinstate our venous blood sample claim, and we expect to incur additional costs +during fiscal 2019. In the course of remediation, we may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of its products. At this time, we do not believe that any such notifications would impact +the ability to use the LeadCare systems with capillary blood samples. +- 32 - +Table of Contents +As set forth in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena +from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we are cooperating with the DOJ in this matter. We maintain rigorous policies and procedures to +promote compliance with applicable regulatory agencies and requirements, and are working with the DOJ to promptly respond to the subpoena. However, we cannot predict when the investigation will be resolved, the outcome of the investigation, or its +potential impact on Meridian. +USE OF NON-GAAP MEASURES +We have supplemented our reported GAAP financial information with information on net earnings, basic earnings per share and diluted earnings per share +excluding the effects of: (i) restructuring and litigation costs (fiscal 2018, 2017 and 2016); (ii) the impairment charge against Diagnostics segment goodwill (fiscal 2017); (iii) acquisition-related costs (fiscal 2016); and (iv) certain one-time tax effects of the tax reform act – each of which is a non-GAAP measure. We have provided in the tables below reconciliations to the net earnings, basic earnings +per share and diluted earnings per share amounts reported under U.S. Generally Accepted Accounting Principles. We believe that this information is useful to those who read our financial statements and evaluate our operating results because: +1. +These measures help to appropriately evaluate and compare the results of operations from period to period by +removing the impacts of these non-routine items; and +2. +These measures are used by our management for various purposes, including evaluating performance against +incentive bonus achievement targets, comparing performance from period to period in presentations to our board of directors, and as a basis for strategic planning and forecasting. +Revenue reported on a constant-currency basis is also a non-GAAP measure and is calculated by applying current period +average foreign currency exchange rates to each of the comparable periods. Management analyzes revenue on a constant-currency basis to better measure the comparability of results between periods. Because changes in foreign currency exchange rates +have a non-operating impact on revenue, management believes that evaluating revenue changes on a constant-currency basis provides an additional and meaningful assessment of revenue to both management and +investors. +- 33 - +Table of Contents +These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations, in that they do not reflect all amounts associated with our results as determined in accordance with U.S. GAAP. Therefore, these measures should only be used to evaluate our +results in conjunction with corresponding GAAP measures. +2018 +2017 +2016 +Net Earnings - +U.S. GAAP basis +$ +23,849 +$ +21,557 +$ +32,229 +Restructuring costs (1) +6,430 +87 +431 +Litigation costs (1) +3,205 +408 +— +Goodwill impairment charge (2) +— +6,628 +— +Acquisition-related costs (1) +— +— +1,233 +One-time benefit from tax law change +(2,655 +) +— +— +Repatriation transition tax +876 +— +— +Adjusted earnings +$ +31,705 +$ +28,680 +$ +33,893 +Net Earnings per Basic Common Share - +U.S. GAAP basis +$ +0.56 +$ +0.51 +$ +0.77 +Restructuring costs (1) +0.15 +— +0.01 +Litigation costs (1) +0.08 +0.01 +— +Goodwill impairment charge (2) +— +0.16 +— +Acquisition-related costs (1) +— +— +0.03 +One-time benefit from tax law change +(0.06 +) +— +— +Repatriation transition tax +0.02 +— +— +Adjusted Basic EPS +$ +0.75 +$ +0.68 +$ +0.81 +Net Earnings per Diluted Common Share - +U.S. GAAP basis +$ +0.56 +$ +0.51 +$ +0.76 +Restructuring costs (1) +0.15 +— +0.01 +Litigation costs (1) +0.07 +0.01 +— +Goodwill impairment charge (2) +— +0.16 +— +Acquisition-related costs (1) +— +— +0.03 +One-time benefit from tax law change +(0.06 +) +— +— +Repatriation transition tax +0.02 +— +— +Adjusted Diluted EPS (3) +$ +0.74 +$ +0.67 +$ +0.80 +(1) +These restructuring costs, litigation costs, and acquisition-related costs are net of income tax effects of +$3,416, $267 and $494 in fiscal 2018, 2017 and 2016, respectively, which were calculated using the effective tax rates of the jurisdictions in which the costs were incurred. +(2) +Since the goodwill impairment charge was not deductible for tax purposes, there are no income tax effects. +(3) +Net Earnings per Diluted Common Share for fiscal 2017 does not sum to the total Adjusted Diluted EPS due to +rounding. +- 34 - +Table of Contents +REVENUE OVERVIEW +Below are analyses of the Company’s revenue, by reportable segment, provided for each of the following: +- By Geographic Region +- By +Product Platform/Type +Revenue Overview- By Reportable Segment & Geographic Region +Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease diagnostic +products in Cincinnati, Ohio and manufacturing operations for products detecting elevated lead levels in blood in Billerica, Massachusetts (near Boston). These diagnostic test products are sold and distributed in the countries comprising North and +Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations +in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents domestically and abroad, +including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia. +Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, +seasonality and the severity of seasonal diseases and outbreaks, and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major +customers, and foreign currency exchange rates. We believe that the overall breadth of our product lines serves to reduce the variability in consolidated revenues due to these factors. +Revenues for each of our segments and the geographic regions therein are shown below. +2018 vs. +2017 +2017 vs. +2016 +2018 +2017 +2016 +Inc (Dec) +Inc (Dec) +Diagnostics- +Americas +$ +126,647 +$ +119,685 +$ +123,187 +6 +% +(3 +)% +EMEA +21,231 +20,273 +19,024 +5 +% +7 +% +ROW +2,576 +3,563 +2,903 +(28 +)% +23 +% +Total Diagnostics +150,454 +143,521 +145,114 +5 +% +(1 +)% +Life Science- +Americas +20,792 +19,978 +19,484 +4 +% +3 +% +EMEA +24,530 +21,968 +20,075 +12 +% +9 +% +ROW +17,795 +15,304 +11,409 +16 +% +34 +% +Total Life Science +63,117 +57,250 +50,968 +10 +% +12 +% +Consolidated +$ +213,571 +$ +200,771 +$ +196,082 +6 +% +2 +% +% of total revenues- +Diagnostics +70 +% +71 +% +74 +% +Life Science +30 +% +29 +% +26 +% +Total +100 +% +100 +% +100 +% +Ex-Americas +31 +% +30 +% +27 +% +- 35 - +Table of Contents +Revenue Overview- By Product Platform/Type +The revenues generated by each of our reportable segments result primarily from the sale of the following segment-specific categories of products: +Diagnostics +1) +Molecular assays that operate on our Alethia platform (formerly branded as illumi gene ) +2) +Immunoassays and blood chemistry assays on multiple technology platforms +Life Science +1) +Molecular reagents +2) +Immunological reagents +2018 vs. +2017 +2017 vs. +2016 +2018 +2017 +2016 +Inc (Dec) +Inc (Dec) +Diagnostics- +Molecular assays +$ +34,011 +$ +33,901 +$ +38,302 +— +% +(11 +)% +Immunoassays & blood chemistry assays +116,443 +109,620 +106,812 +6 +% +3 +% +Total Diagnostics +$ +150,454 +$ +143,521 +$ +145,114 +5 +% +(1 +)% +Life Science- +Molecular reagents +$ +24,613 +$ +21,998 +$ +20,506 +12 +% +7 +% +Immunological reagents +38,504 +35,252 +30,462 +9 +% +16 +% +Total Life Science +$ +63,117 +$ +57,250 +$ +50,968 +10 +% +12 +% +% of Diagnostics revenues- +Molecular assays +23 +% +24 +% +26 +% +Immunoassays & blood chemistry assays +77 +% +76 +% +74 +% +Total Diagnostics +100 +% +100 +% +100 +% +% of Life Science revenues- +Molecular reagents +39 +% +38 +% +40 +% +Immunological reagents +61 +% +62 +% +60 +% +Total Life Science +100 +% +100 +% +100 +% +- 36 - +Table of Contents +Following is a discussion of the revenues generated by these product platforms/types and/or disease states: +Diagnostics Products +Gastrointestinal +Assays +During fiscal 2018, revenues from our gastrointestinal products, which include tests for C. difficile , H. pylori and certain +foodborne pathogens, among others, totaled $78,803. This represents a 1% increase from fiscal 2017 and follows a 12% decrease during fiscal 2017. We continue to face pricing and volume pressures within this product category that will carry into +fiscal 2019 and beyond for our current products. We have executed multi-year supply agreements with our two largest reference laboratory customers for H. pylori tests to secure volume, albeit at lower selling prices. We continue to believe +there are ongoing benefits to be realized from our partnerships with managed care companies in promoting: (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional +serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing. +Contributing to the competitive pressures being faced in this product category, the patents for our H. pylori products, owned by us, expired in May +2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our H. pylori products to increase in the near future, and such competition may have an adverse impact on our selling prices for these +products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. Our product development pipeline includes new product +initiatives for the detection of H. pylori , and we recently entered into a strategic collaboration with DiaSorin to sell H. pylori tests. We are unable to provide assurances that we will be successful with any strategy or that any +strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +Respiratory Illness +Assays +Including tests for influenza, RSV, Group A Strep, Pertussis, and Mycoplasma pneumonia, among others, our respiratory illness product +revenues increased 22% in fiscal 2018, following a 2% increase in fiscal 2017. These increased revenues reflect volume growth from a particularly strong 2017 – 2018 flu season, as measured by the rate of laboratory-confirmed influenza +hospitalizations (published by the CDC). +Blood Chemistry Assays +Revenues from our sale of products to test for elevated levels of lead in blood increased 5% during fiscal 2018 to a total of $19,109. This follows fiscal 2017 +revenues from such products increasing 2% over the twelve months ended September 30, 2016, of which the six months ended March 31, 2016 were prior to Meridian’s ownership of Magellan. These increases were achieved despite the effect +on venous blood testing revenue of the previously-noted FDA-related activities. +- 37 - +Table of Contents +Life Science Products +During fiscal 2018, revenues from our Life Science segment increased 10%, with revenues from molecular reagent sales increasing 12% compared to fiscal 2017 and +revenues from immunological reagent sales increasing 9%. Life Science segment revenues increased 12% in fiscal 2017, with revenues from molecular reagent sales increasing 7% compared to fiscal 2016 and revenues from immunological reagent sales +increasing 16%. Our Life Science segment’s growth was impacted by the movement in currency exchange rates since fiscal 2017, with revenues increasing 9% on a constant-currency basis over fiscal 2017. During fiscal 2018, our Life Science segment +continued to benefit from increased revenue from sales into China, with such sales totaling approximately $8,300 during fiscal 2018 – representing an approximate 41% increase over fiscal 2017. +Foreign Currency +Fluctuations in foreign currency +exchange rates since fiscal 2017 had an approximate $2,200 favorable impact on fiscal 2018 revenues; $1,400 within the Diagnostics segment and $800 within the Life Science segment. This compares to year-to-year currency exchange rates having an approximate $1,200 unfavorable impact on revenues in fiscal 2017; $400 within the Diagnostics segment and $800 within the Life Science segment. Due to natural +hedge relationships with expenses, both cost of sales and operating expenses, the overall impact of exchange rate fluctuations on net earnings was not significant during fiscal 2018, 2017 or 2016. +Significant Customers +Revenue concentrations +related to certain customers within our Diagnostics and Life Science segments are set forth in Note 9 of the accompanying Consolidated Financial Statements. +Gross Profit: +2018 +2017 +2016 +2018 vs. +2017 +Inc (Dec) +2017 vs. +2016 +Inc (Dec) +Gross Profit +$ +130,461 +$ +124,292 +$ +127,212 +5 +% +(2 +)% +Gross Profit Margin +61 +% +62 +% +65 +% +-1 point +-3 points +The overall gross profit margin decrease during fiscal 2018 primarily results from the combined effects of: (i) pricing +pressure in our Diagnostics segment; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; and (iii) operating segment mix. The overall decrease in the gross profit margin +from fiscal 2016 to fiscal 2017 reflects the combined effects of: (i) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; (ii) customer mix; (iii) operating segment mix; +and (iv) decreased production levels in certain of our production facilities designed to reduce inventory levels. +- 38 - +Table of Contents +Our overall operations consist of the sale of diagnostic test kits for various disease states and in +alternative test formats, as well as bioresearch reagents, bulk antigens and antibodies, PCR/qPCR reagents, nucleotides, competent cells, and proficiency panels. Product revenue mix shifts, in the normal course of business, can cause the +consolidated gross profit margin to fluctuate by several points. +Operating Expenses - +Segment Detail +Research & +Development +Selling & +Marketing +General & +Administrative +Other +Total Operating +Expenses +Fiscal 2016: +Diagnostics +$ +11,412 +$ +21,339 +$ +21,483 +$ +— +$ +54,234 +Life Science +2,779 +8,717 +7,946 +— +19,442 +Unallocated expenses +— +— +— +2,158 +2,158 +Total 2016 Expenses +$ +14,191 +$ +30,056 +$ +29,429 +$ +2,158 +$ +75,834 +Fiscal 2017: +Diagnostics +$ +13,433 +$ +22,942 +$ +23,603 +$ +— +$ +59,978 +Life Science +2,603 +9,446 +7,493 +— +19,542 +Unallocated expenses +— +— +— +7,390 +7,390 +Total 2017 Expenses +$ +16,036 +$ +32,388 +$ +31,096 +$ +7,390 +$ +86,910 +Fiscal 2018: +Diagnostics +$ +13,772 +$ +24,990 +$ +26,257 +$ +— +$ +65,019 +Life Science +3,098 +9,478 +8,231 +— +20,807 +Unallocated expenses +— +— +— +13,051 +13,051 +Total 2018 Expenses +$ +16,870 +$ +34,468 +$ +34,488 +$ +13,051 +$ +98,877 +- 39 - +Table of Contents +Operating Expenses - +Comparisons to Prior Year +Periods +Research & +Development +Selling & +Marketing +General & +Administrative +Other +Total Operating +Expenses +2016 Expenses +$ +14,191 +$ +30,056 +$ +29,429 +$ +2,158 +$ +75,834 +% of Revenues +7 +% +15 +% +15 +% +1 +% +39 +% +Fiscal 2017 Increases (Decreases): +Diagnostics +2,021 +1,603 +2,120 +— +5,744 +Life Science +(176 +) +729 +(453 +) +— +100 +Restructuring costs +— +— +— +(543 +) +(543 +) +Litigation costs +— +— +— +628 +628 +Goodwill impairment charge +— +— +— +6,628 +6,628 +Acquisition-related costs +— +— +— +(1,481 +) +(1,481 +) +2017 Expenses +$ +16,036 +$ +32,388 +$ +31,096 +$ +7,390 +$ +86,910 +% of Revenues +8 +% +16 +% +15 +% +4 +% +43 +% +% Increase +13 +% +8 +% +6 +% +242 +% +15 +% +Fiscal 2018 Increases (Decreases): +Diagnostics +339 +2,048 +2,654 +— +5,041 +Life Science +495 +32 +738 +— +1,265 +Restructuring costs +— +— +— +8,572 +8,572 +Litigation costs +— +— +— +3,717 +3,717 +Goodwill impairment charge +— +— +— +(6,628 +) +(6,628 +) +2018 Expenses +$ +16,870 +$ +34,468 +$ +34,488 +$ +13,051 +$ +98,877 +% of Revenues +8 +% +16 +% +16 +% +6 +% +46 +% +% Increase +5 +% +6 +% +11 +% +77 +% +14 +% +Total operating expenses increased during both fiscal 2018 and fiscal 2017, resulting primarily from the combined effects of +the following: +Diagnostics +Fiscal 2018 increase +• +Increased Selling & Marketing costs, reflecting increased commission and bonus payments made in +connection with the increased revenue levels, along with costs associated with the new branding strategy; and +• +Increased General & Administrative costs due in large part to the cash incentive compensation resulting +from the revenue and net earnings results achieved, along with increased Quality System remediation costs related to Magellan. +- 40 - +Table of Contents +Fiscal 2017 increase +• +Incremental Magellan operating expenses due to six additional months of Meridian ownership in fiscal 2017; and +• +Increased Research & Development costs in connection with instrumentation development programs. +Life Science +Fiscal 2018 increase +• +Increased Research & Development costs related to new molecular reagent products; and +• +Increased General & Administrative costs due in large part to the cash incentive compensation resulting +from the revenue and net earnings results achieved. +Fiscal 2017 increase +• +Increased investment in Sales & Marketing activities, including costs associated with the WFOE +established in Beijing, China during fiscal 2017. +Other +Fiscal 2018 and fiscal 2017 activity +• +Restructuring costs (reflected within “Other” in the above tables) totaled $8,706 and $134 in fiscal +2018 and fiscal 2017, respectively. These costs reflect: (i) compensation and benefits for our previous Executive Chairman and CEO throughout fiscal 2018, the period during which we also have the compensation and benefits of a new CEO; and +(ii) the costs of terminations and related expenses incurred in connection with realigning our business structure. +• +Litigation costs (reflected within “Other” in the above tables) totaled $4,345 and $628 in fiscal 2018 +and fiscal 2017, respectively, and relate to the matters discussed in Item 3. “Legal Proceedings”. +• +A goodwill impairment charge totaling $6,628 was recorded in fiscal 2017, with no such additional charges +occurring in fiscal 2018. +• +Costs were incurred in fiscal 2016 in connection with: (i) acquisition activities, most notably related to +the acquisition of Magellan; and (ii) restructuring Sales & Marketing leadership, primarily related to severance obligations for former employees. +Operating Income +Operating income decreased 15% and 27% +in fiscal 2018 and 2017, respectively, as a result of the factors discussed above, including the restructuring and litigation costs in fiscal 2018 and the Magellan goodwill impairment charge and restructuring and litigation costs in fiscal 2017. +- 41 - +Table of Contents +Other Income and Expense +Other income and expense in fiscal 2018 and fiscal 2017 includes interest costs on the term loan used to fund the acquisition of Magellan. The effective +interest rate on this term loan is 2.76%. +Income Taxes +The effective rate for income taxes was 21%, 41% and 36% for fiscal 2018, 2017 and 2016, respectively. The lower fiscal 2018 taxes primarily result from the +combined net impact of the following effects of the recently-enacted tax reform act (see Note 6 “Income Taxes” of the accompanying Consolidated Financial Statements): +• +Application of an approximate 24.5% blended federal rate due to the lowering of the applicable federal rate from +35% to 21%; +• +Recognizing a one-time $2,655 tax benefit including the re-measurement of deferred tax balances at the lower rate; and +• +Recording a one-time $876 tax expense related to the estimated +repatriation transition tax on foreign earnings. +The increased fiscal 2017 rate results primarily from the non-deductibility of the Magellan goodwill impairment charge. Excluding the effects of the Magellan goodwill impairment charge, the effective tax rate was 35% for fiscal 2017. +Impact of Inflation +To the extent feasible, we have +consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. Inflation and changing prices did not have a material +adverse impact on our gross margin, revenues or operating income in fiscal 2018, 2017 or 2016. +Liquidity and Capital Resources : +Liquidity +Our cash flow and financing requirements +are determined by analyses of operating and capital spending budgets, debt service, consideration of acquisition plans, and consideration of common share dividends. We have historically maintained a credit facility to augment working capital +requirements and to respond quickly to acquisition opportunities. +- 42 - +Table of Contents +We have an investment policy that guides the holdings of our investment portfolio, which presently consists +of bank savings accounts and institutional money market mutual funds. Our objectives in managing the investment portfolio are to: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund +strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our +investment portfolio with preservation of capital being the primary objective. +Considering the various worldwide +geo-political and geo-economic conditions (including Brexit, as more fully discussed within the “Risk Factors” section of Part 1A), we do not expect +macroeconomic conditions to have a significant impact on our liquidity needs, financial condition or results of operations, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements and +dividends from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through our $30,000 bank revolving credit facility. Our liquidity needs may change if overall economic conditions +worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply +of raw materials and services. +Fluctuations in overall stock market valuations may raise questions as to the potential impairment of goodwill and other +long-lived assets. Our annual goodwill impairment review takes place as of June 30 th each year, and is performed at the reporting unit level. While these annual reviews to-date have not resulted in the recording of any impairments, a $6,628 impairment charge was recorded in fiscal 2017 on the goodwill resulting from the Magellan acquisition due to certain FDA activities related to +our lead testing system utilizing venous blood samples (see full description previously within this MD&A). As of September 30, 2018, our stock price was $14.90 per share, compared to our book value per share of $4.14. This relationship, +stock price trading at a 3.6x multiple of book value, is an indicator that the fluctuation in overall stock market valuations and its impact on our stock price has not been a triggering event for further impairment of our goodwill and other +long-lived assets. +As of September 30, 2018, our cash and equivalents balance is $59,763 or $2,691 higher than at the end of fiscal 2017. This +increase results in large part from the cash flows from operating activities being more than sufficient to cover capital expenditures, shareholder dividends and debt service. Net cash flows from operating activities and cash on hand are anticipated +to be adequate to fund working capital requirements, capital expenditures and shareholder dividends during the next 12 months. +The indicated annual cash +dividend rate for fiscal 2018 was established at $0.50 per share. Consistent with this annual indicated dividend rate, a cash dividend of $0.125 was declared for each of the quarters of fiscal 2018. +- 43 - +Table of Contents +Capital Resources +In connection with the acquisition of Magellan, the Company entered into a $60,000 five-year term loan and related interest rate swap agreement with a +commercial bank, the details of which are set forth in Note 5 of the accompanying Consolidated Financial Statements. In addition, we have a $30,000 revolving credit facility (discussed above) with a commercial bank that expires March 31, 2021. +As of November 22, 2018, there were no borrowings outstanding on this facility and we had 100% borrowing capacity available to us. We have had no borrowings outstanding under this revolving credit facility during fiscal 2018, 2017 or 2016. +Our capital expenditures totaled $4,201 for fiscal 2018 and were largely related to laboratory equipment, manufacturing equipment and a new business +intelligence system. During fiscal 2019 our capital expenditures are estimated to range between approximately $4,000 to $5,000, with the actual amount dependent upon actual operating results and the phasing of certain projects. Such expenditures may +be funded with cash and equivalents on hand, operating cash flows and/or availability under the $30,000 revolving credit facility discussed above. +Known Contractual Obligations : +Known +contractual obligations and their related due dates were as follows as of September 30, 2018: +Total +Less than 1 +Year +1-3 Years +4-5 Years +More than +5 Years +Operating leases (1) +$ +7,914 +$ +1,866 +$ +4,139 +$ +1,480 +$ +429 +Purchase obligations (2) +11,398 +11,271 +117 +10 +— +Loan principal payments (3) +50,250 +5,250 +45,000 +— +— +Scheduled interest payments (3) +3,094 +1,358 +1,736 +— +— +Uncertain income tax positions liability and interest (4) +423 +423 +— +— +— +Total +$ +73,079 +$ +20,168 +$ +50,992 +$ +1,490 +$ +429 +(1) +Meridian and its subsidiaries are lessees of: (i) office and warehouse buildings in Ohio, Massachusetts, +Florida, Australia, Belgium, France, Germany, China and the U.K.; (ii) automobiles for use by the diagnostic direct sales forces in the U.S. and Europe; and (iii) certain office equipment such as facsimile and copier machines across all +business units, under operating lease agreements that expire at various dates. +(2) +Purchase obligations relate primarily to outstanding purchase orders for inventory, including instruments, +service items, and research and development activities. These contractual commitments are not in excess of expected production requirements over the next twelve months. +(3) +These principal and interest payments relate to the $60,000 five-year term loan with a commercial bank entered +into in connection with the acquisition of Magellan, and reflect the impact of an interest rate swap agreement with the commercial bank, which effectively converts the variable interest rate on the term loan to a fixed rate of 2.76%. The details of +the loan and the interest rate swap are set forth in Note 5 of the accompanying Consolidated Financial Statements. +(4) +Due to inherent uncertainties in the timing of settlement of tax positions, we are unable to estimate the +timing of the effective settlement of these obligations. +- 44 - +Table of Contents +Other Commitments and Off-Balance Sheet Arrangements : +License Agreements +Meridian has entered +into various license agreements that require payment of royalties based on a specified percentage of sales of related products. Approximately 86% of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from +4% to 8%. Meridian expects that payments under these agreements will amount to approximately $2,700 in fiscal 2019. +Off-Balance Sheet Arrangements +We do not utilize special-purpose financing vehicles or have undisclosed off-balance sheet arrangements. +Market Risk Exposure : +Foreign Currency Risk +We have market risk exposure related to foreign currency transactions from our operations outside the United States, as well as certain suppliers +to our domestic businesses located outside the United States. The foreign currencies where we have market risk exposure are the Australian dollar, British pound, Chinese yuan and Euro. Assessing foreign currency exposures is a component of our +overall ongoing risk management process, with such currency risks managed as we deem appropriate. +Concentration of Customers/Products Risk +Our Diagnostics segment’s revenues from sales through two U.S. distributors were 29% of the segment’s total revenues or 20% of +consolidated revenues for fiscal 2018. Additionally, our three major product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 84% of our Diagnostics segment’s third-party revenues during fiscal +2018, and 59% of our fiscal 2018 consolidated revenues. +Our Life Science segment’s revenues from sales of purified antigens and reagents to two +diagnostics manufacturing customers were 18% of the segment’s total revenues for fiscal 2018, and 5% of our fiscal 2018 consolidated revenues. +Critical Accounting Policies : +The consolidated +financial statements included in this Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States. Such accounting principles require +management to make judgments about estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Listed below are the accounting policies management believes to be critical to +understanding the accompanying Consolidated Financial Statements, along with reference to location of the policy discussion within the accompanying financial statements. The listed policies are considered critical due to the fact that application of +such polices requires the use of significant estimates and assumptions, and the carrying values of related assets and liabilities are material. +- 45 - +Table of Contents +Accounting Policy +Location +Within Consolidated +Financial Statements +Examples of Key Estimate Assumptions +Inventories +Note 1(f) +Slow-moving, excess & obsolete inventories +Intangible Assets +Note 1(h) +Triggering events and impairment conditions +Revenue Recognition +Note 1(i) +Distributor price adjustments and fee accruals +Income Taxes +Note 1(k) and Note 6 +Uncertain tax positions and state apportionment factors +Recent Accounting Pronouncements : +In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which supersedes and +replaces nearly all currently-existing U.S. GAAP revenue recognition guidance including related disclosure requirements. This guidance, including any clarification guidance thereon, is effective for the Company beginning October 1, 2018 (fiscal +2019). The Company anticipates that adoption of ASU 2014-09 on a modified retrospective basis will result in the recording of an immaterial adjustment to retained earnings of approximately $150 and expanding certain disclosures, as required. +In February 2016, the FASB issued ASU 2016-02, Leases , which amends the accounting guidance related to leases. +These changes, which are designed to increase transparency and comparability among organizations for both lessees and lessors, include, among other things, requiring recognition of lease assets and liabilities on the balance sheet and disclosing key +information about leasing arrangements. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2020, although early adoption is permitted. The Company expects to begin its assessment of the impact +that adoption of this guidance will have on its financial statements in fiscal 2019. +In March 2016, the FASB issued ASU +2016-09, Improvements to Employee Share-Based Payment Accounting , which amends the accounting for share-based payment transactions. These changes, which are designed for simplification, involve several +aspects of the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this guidance in the +first quarter of fiscal 2018, and as a result recorded $160 to the income tax provision, which under previous guidance would have been recorded in additional paid-in capital. While the future effect of +this guidance is dependent on numerous factors (e.g., the market price of the Company’s common stock on the equity award grant date, the exercise/lapse dates of equity awards, and the market price of the Company’s common stock on such +exercise/lapse dates), the effect is not expected to be material. During fiscal 2018, our tax provision included a $180 charge for application of ASU 2016-09. +- 46 - +Table of Contents +In August 2016, the FASB issued ASU 2016-15, Classification of +Certain Cash Receipts and Cash Payments . The update addresses certain specific cash flows and their treatment, with the objective being to reduce the existing diversity in how the items are presented and classified within the statement of cash +flows. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2019, although early adoption is permitted. Adoption of this guidance is not expected to have a significant impact on the Company’s +statement of cash flows. +ITEM 7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +See Market Risk Exposure and Capital Resources under Item 7 above beginning on page 31. +- 47 - +Table of Contents +ITEM 8. +FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +Index to Consolidated Financial Statements +Management’s Report on Internal Control +over Financial Reporting +49 +Reports of Independent Registered Public Accounting Firm +50 +Consolidated Statements of Operations for the years ended September +30, 2018, 2017 and 2016 +53 +Consolidated Statements of Comprehensive Income for the years ended September 30, +2018, 2017 and 2016 +54 +Consolidated Statements of Cash Flows for the years ended September +30, 2018, 2017 and 2016 +55 +Consolidated Balance Sheets as of September 30, 2018 and +2017 +56 +Consolidated Statements of Shareholders’ Equity for the years ended September 30, +2018, 2017 and 2016 +58 +Notes to Consolidated Financial Statements +59 +Schedule No. II – Valuation and Qualifying Accounts for the years ended September 30, +2018, 2017 and 2016 +87 +All other supplemental schedules are omitted due to the absence of conditions under which they are required or because the +information is shown in the Consolidated Financial Statements or Notes thereto. +- 48 - +Table of Contents +Management’s Report on Internal Control over Financial +Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act +Rule 13a-15(f). +The Company’s internal control over financial reporting includes those policies and +procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are +recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management +and directors of the Company; and (iii) 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 can only provide reasonable assurance and 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. +Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief +Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2018, based on the framework and criteria in the 2013 Internal Control – Integrated Framework, +issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on management’s evaluation and those criteria, the Company concluded that its system of internal control over financial reporting was +effective as of September 30, 2018. +The Company’s independent registered public accounting firm has issued an attestation report on the +registrant’s internal control over financial reporting. +/s/ Jack Kenny +/s/ Melissa A. Lueke +Jack Kenny +Melissa A. Lueke +Chief Executive Officer +Executive Vice President and +November 29, 2018 +Chief Financial Officer +November 29, 2018 +- 49 - +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Shareholders +Meridian Bioscience, Inc. +Opinion on the financial statements +We have audited the +accompanying consolidated balance sheets of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2018 and 2017, the related consolidated statements of operations, comprehensive income, +shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2018, and the related notes and financial statement schedule listed in the index appearing under Schedule No. II (collectively referred to +as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018 and 2017, and the results of its operations and its cash +flows for each of the three years in the period ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the +Company’s internal control over financial reporting as of September 30, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway +Commission (“COSO”), and our report dated November 29, 2018 expressed an unqualified opinion. +Basis for opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial +statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of +the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that +we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material +misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial +statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable +basis for our opinion. +/s/ GRANT THORNTON LLP +We have served as the Company’s auditor since 2005. +Cincinnati, Ohio +November 29, 2018 +- 50 - +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Shareholders +Meridian Bioscience, Inc. +Opinion on internal control over financial reporting +We have audited the internal control over financial reporting of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as +of September 30, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company +maintained, in all material respects, effective internal control over financial reporting as of September 30, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated +financial statements of the Company as of and for the year ended September 30, 2018, and our report dated November 29, 2018 expressed an unqualified opinion on those financial statements. +Basis for opinion +The Company’s management is responsible +for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial +Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to +the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable +assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material +weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a +reasonable basis for our opinion. +Definition and limitations of internal control over financial reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial +reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that +(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as +necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors +of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +- 51 - +Table of Contents +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/ GRANT THORNTON LLP +Cincinnati, Ohio +November 29, 2018 +- 52 - +Table of Contents +CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2018 +2017 +2016 +Net Revenues +$ +213,571 +$ +200,771 +$ +196,082 +Cost of Sales +83,110 +76,479 +68,870 +Gross Profit +130,461 +124,292 +127,212 +Operating Expenses: +Research and development +16,870 +16,036 +14,191 +Selling and marketing +34,468 +32,388 +30,056 +General and administrative +34,488 +31,096 +29,429 +Restructuring costs +8,706 +134 +677 +Litigations costs +4,345 +628 +— +Goodwill impairment charge +— +6,628 +— +Acquisition-related costs +— +— +1,481 +Total operating expenses +98,877 +86,910 +75,834 +Operating Income +31,584 +37,382 +51,378 +Other Income (Expense): +Interest income +418 +171 +67 +Interest expense +(1,520 +) +(1,642 +) +(897 +) +Other, net +(102 +) +518 +96 +Total other expense +(1,204 +) +(953 +) +(734 +) +Earnings Before Income Taxes +30,380 +36,429 +50,644 +Income Tax Provision +6,531 +14,872 +18,415 +Net Earnings +$ +23,849 +$ +21,557 +$ +32,229 +Earnings Per Share Data: +Basic earnings per common share +$ +0.56 +$ +0.51 +$ +0.77 +Diluted earnings per common share +$ +0.56 +$ +0.51 +$ +0.76 +Common shares used for basic earnings per common share +42,325 +42,188 +42,010 +Effect of dilutive stock options and restricted share units +429 +383 +383 +Common shares used for diluted earnings per common share +42,754 +42,571 +42,393 +Dividends declared per common share +$ +0.500 +$ +0.575 +$ +0.800 +Anti-dilutive Securities: +Common share options and restricted share units +1,007 +873 +462 +The accompanying notes are an integral part of these consolidated financial statements. +- 53 - +Table of Contents +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2018 +2017 +2016 +Net Earnings +$ +23,849 +$ +21,557 +$ +32,229 +Other comprehensive income (loss): +Foreign currency translation adjustment +(1,075 +) +1,616 +(2,732 +) +Unrealized gain (loss) on cash flow hedge +907 +1,544 +(729 +) +Income taxes related to items of other comprehensive income +(263 +) +(590 +) +275 +Other comprehensive income (loss), net of tax +(431 +) +2,570 +(3,186 +) +Comprehensive Income +$ +23,418 +$ +24,127 +$ +29,043 +The accompanying notes are an integral part of these consolidated financial statements. +- 54 - +Table of Contents +CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2018 +2017 +2016 +Cash Flows From Operating Activities +Net earnings +$ +23,849 +$ +21,557 +$ +32,229 +Non-cash items included in net earnings: +Depreciation of property, plant and equipment +4,491 +4,342 +3,937 +Amortization of intangible assets +3,433 +3,776 +2,690 +Amortization of deferred instrument costs +764 +972 +1,091 +Stock-based compensation +3,402 +3,381 +2,911 +Goodwill impairment charge +— +6,628 +— +Deferred income taxes +(300 +) +1,474 +(233 +) +Losses on long-lived assets +— +— +659 +Change in: +Accounts receivable +(4,447 +) +(1,211 +) +119 +Inventories +(1,142 +) +3,467 +(8,225 +) +Prepaid expenses and other current assets +323 +1,225 +(9 +) +Accounts payable and accrued expenses +4,124 +(3,151 +) +1,773 +Income taxes payable +(524 +) +(384 +) +464 +Other, net +810 +(721 +) +(183 +) +Net cash provided by operating activities +34,783 +41,355 +37,223 +Cash Flows From Investing Activities +Purchase of property, plant and equipment +(4,201 +) +(4,467 +) +(4,004 +) +Purchase of equity method investment +— +— +(600 +) +Acquisition of Magellan, net of cash acquired +— +— +(62,091 +) +Net cash used for investing activities +(4,201 +) +(4,467 +) +(66,695 +) +Cash Flows From Financing Activities +Dividends paid +(21,170 +) +(24,266 +) +(33,649 +) +Proceeds from term loan, net of issuance costs +— +— +59,860 +Payments on term loan +(4,500 +) +(3,750 +) +(1,500 +) +Proceeds and tax benefits from exercises of stock options +187 +303 +2,494 +Payment of acquisition consideration +(2,110 +) +— +— +Net cash provided by (used for) financing activities +(27,593 +) +(27,713 +) +27,205 +Effect of Exchange Rate Changes on Cash and Equivalents +(298 +) +671 +(480 +) +Net Increase (Decrease) in Cash and Equivalents +2,691 +9,846 +(2,747 +) +Cash and Equivalents at Beginning of Period +57,072 +47,226 +49,973 +Cash and Equivalents at End of Period +$ +59,763 +$ +57,072 +$ +47,226 +Supplemental Cash Flow Information +Cash paid for interest +$ +1,487 +$ +1,605 +$ +879 +Cash paid for income taxes +$ +6,555 +$ +12,613 +$ +17,915 +The accompanying notes are an integral part of these consolidated financial statements. +- 55 - +Table of Contents +CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +As of September 30, +2018 +2017 +Assets +Current Assets: +Cash and equivalents +$ +59,763 +$ +57,072 +Accounts receivable, less allowances of $310 and $307, respectively +32,336 +29,106 +Inventories +41,993 +41,493 +Prepaid expenses and other current assets +4,961 +6,204 +Total current assets +139,053 +133,875 +Property, Plant and Equipment, at Cost: +Land +1,160 +1,162 +Buildings and improvements +32,444 +32,207 +Machinery, equipment and furniture +50,606 +48,836 +Construction in progress +1,631 +1,895 +Subtotal +85,841 +84,100 +Less: accumulated depreciation and amortization +55,846 +53,590 +Net property, plant and equipment +29,995 +30,510 +Other Assets: +Goodwill +54,637 +54,926 +Other intangible assets, net +23,113 +26,704 +Restricted cash +1,000 +1,000 +Deferred instrument costs, net +1,239 +1,368 +Fair value of interest rate swap +1,722 +815 +Deferred income taxes +130 +158 +Other assets +488 +421 +Total other assets +82,329 +85,392 +Total assets +$ +251,377 +$ +249,777 +The accompanying notes are an integral part of these consolidated financial statements. +- 56 - +Table of Contents +CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +As of September 30, +2018 +2017 +Liabilities and Shareholders’ Equity +Current Liabilities: +Accounts payable +$ +6,260 +$ +7,719 +Accrued employee compensation costs +7,263 +4,536 +Current portion of acquisition consideration +— +2,095 +Other accrued expenses +5,065 +2,789 +Current portion of long-term debt +5,250 +4,500 +Income taxes payable +335 +1,248 +Total current liabilities +24,173 +22,887 +Non-Current +Liabilities +Acquisition consideration +— +235 +Post-employment benefits +2,646 +2,468 +Long-term debt +44,930 +50,147 +Long-term income taxes payable +441 +— +Deferred income taxes +3,769 +4,455 +Total non-current liabilities +51,786 +57,305 +Commitments and Contingencies +Shareholders’ Equity: +Preferred stock, no par value; 1,000,000 shares authorized; none issued +— +— +Common shares, no par value; 71,000,000 shares authorized, 42,399,962 and 42,207,317 issued, +respectively +— +— +Additional paid-in capital +129,193 +125,608 +Retained earnings +49,602 +46,923 +Accumulated other comprehensive loss +(3,377 +) +(2,946 +) +Total shareholders’ equity +175,418 +169,585 +Total liabilities and shareholders’ equity +$ +251,377 +$ +249,777 +The accompanying notes are an integral part of these consolidated financial statements. +- 57 - +Table of Contents +CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollar and share amounts +in thousands, except per share data) +Meridian Bioscience, Inc. and Subsidiaries +Common +Shares +Issued +Additional +Paid-in +Capital +Retained +Earnings +Accum Other +Comp +Income +(Loss) +Total +Balance at September 30, 2015 +41,838 +$ +117,151 +$ +51,052 +$ +(2,330 +) +$ +165,873 +Cash dividends paid - $0.800 per share +— +— +(33,649 +) +— +(33,649 +) +Exercise of stock options +152 +2,294 +— +— +2,294 +Conversion of restricted share units +117 +— +— +— +— +Stock compensation expense +— +2,911 +— +— +2,911 +Net earnings +— +— +32,229 +— +32,229 +Foreign currency translation adjustment +— +— +— +(2,732 +) +(2,732 +) +Hedging activity, net of tax +— +— +— +(454 +) +(454 +) +Balance at September 30, 2016 +42,107 +122,356 +49,632 +(5,516 +) +166,472 +Cash dividends paid - $0.575 per share +— +— +(24,266 +) +— +(24,266 +) +Exercise of stock options +18 +(129 +) +— +— +(129 +) +Conversion of restricted share units +82 +— +— +— +— +Stock compensation expense +— +3,381 +— +— +3,381 +Net earnings +— +— +21,557 +— +21,557 +Foreign currency translation adjustment +1,616 +1,616 +Hedging activity, net of tax +— +— +— +954 +954 +Balance at September 30, 2017 +42,207 +125,608 +46,923 +(2,946 +) +169,585 +Cash dividends paid - $0.500 per share +— +— +(21,170 +) +— +(21,170 +) +Exercise of stock options +13 +183 +— +— +183 +Conversion of restricted share units +180 +— +— +— +— +Stock compensation expense +— +3,402 +— +— +3,402 +Net earnings +— +— +23,849 +— +23,849 +Foreign currency translation adjustment +(1,075 +) +(1,075 +) +Hedging activity, net of tax +— +— +— +644 +644 +Balance at September 30, 2018 +42,400 +$ +129,193 +$ +49,602 +$ +(3,377 +) +$ +175,418 +The accompanying notes are an integral part of these consolidated financial statements. +- 58 - +Table of Contents +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +Meridian Bioscience, Inc. and Subsidiaries +(dollar and +share amounts in thousands, except per share data) +(1) +Summary of Significant Accounting Policies +(a) +Nature of Business - Meridian is a fully-integrated life science company whose principal +businesses are: (i) the development, manufacture and distribution of clinical diagnostic test kits primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and +distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch reagents used by other diagnostic manufacturers and researchers. +(b) +Principles of Consolidation - The consolidated financial statements include the accounts of Meridian +Bioscience, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to “Meridian,” “we,” “us,” “our” or +“our company” refer to Meridian Bioscience, Inc. and its subsidiaries. +(c) +Use of Estimates - The preparation of financial statements in conformity with generally accepted +accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts +of revenues and expenses during the reporting period. Actual results could differ from those estimates. +(d) +Foreign Currency Translation - Assets and liabilities of foreign operations are translated using year-end exchange rates with gains or losses resulting from translation included as a separate component of accumulated other comprehensive income or loss. Revenues and expenses are translated using exchange rates +prevailing during the year. We also recognize foreign currency transaction gains and losses on certain assets and liabilities that are denominated in the Australian dollar, British pound, Chinese yuan and Euro currencies. These gains and losses are +included in other income and expense in the accompanying Consolidated Statements of Operations. +(e) +Cash, Cash Equivalents and Investments - The primary objectives of our investment activities are +to preserve capital and provide sufficient liquidity to meet operating requirements and fund strategic initiatives such as acquisitions. We maintain a written investment policy that governs the management of our investments in fixed income +securities. This policy, among other things, provides that we may purchase only high credit-quality securities that have short-term ratings of at least A-2, P-2 and F-2, and long-term ratings of at least A, Baa1 and A, by Standard & Poor’s, Moody’s and Fitch, respectively, at the time of purchase. We consider short-term investments with original maturities of +90 days or less to be cash equivalents, including institutional money market funds. At times our investments of cash and equivalents with various high credit quality financial institutions may be in excess of the Federal Deposit Insurance +Corporation (FDIC) insurance limit. +- 59 - +Table of Contents +Our investment portfolio includes the following components: +September 30, 2018 +September 30, 2017 +Cash and +Equivalents +Other +Cash and +Equivalents +Other +Institutional money market funds +$ +20,421 +$ +— +$ +20,104 +$ +— +Cash on hand – +Restricted +— +1,000 +— +1,000 +Unrestricted +39,342 +— +36,968 +— +Total +$ +59,763 +$ +1,000 +$ +57,072 +$ +1,000 +(f) +Inventories - Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out (FIFO) basis. Alethia instruments are carried in inventory until customer placement, at which time they are transferred to deferred instrument costs, +unless sold outright. Similarly, blood lead testing instruments are carried in inventory until they are sold outright or placed with a customer under the customer reagent rental program, at which time they are transferred to property, plant and +equipment. +We establish reserves against cost for excess and obsolete materials, finished goods whose shelf life may +expire before sale to customers, and other identified exposures. Such reserves were $1,971 and $2,059 at September 30, 2018 and 2017, respectively. We estimate these reserves based on assumptions about future demand and market conditions. If +actual demand and market conditions were to be less favorable than such estimates, additional inventory write-downs would be required and recorded in the period known. Such adjustments would negatively affect gross profit margin and overall results +of operations. +(g) +Property, Plant and Equipment - Property, plant and equipment are stated at cost. Upon retirement or +other disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line +method in amounts sufficient to write-off the cost over the estimated useful lives, generally as follows: +Buildings and improvements - 18 to 40 years +Leasehold improvements - life of the lease +Machinery, equipment and furniture - 3 to 10 years +Computer equipment and software - 3 to 5 years +Instruments under customer reagent rental arrangements - 5 years +- 60 - +Table of Contents +(h) +Intangible Assets - Goodwill is subject to an annual impairment review (or more frequently if impairment +indicators arise) at the reporting unit level, which we perform annually as of June 30, the end of our third fiscal quarter. A reporting unit is generally an operating segment or one level below an operating segment that constitutes a business +for which discrete financial information is available and regularly reviewed by segment management. Following the fiscal 2018 restructuring and consolidation of separately-run businesses into two integrated +global business units (see Note 2), at September 30, 2018, we had two reporting units (Diagnostics and Life Science), both of which contained goodwill. We review our reporting unit structure annually, or more frequently if facts and +circumstances warrant. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. We have no intangible assets with indefinite lives other than goodwill. +During fiscal 2018, we performed quantitative assessments as of June 30, 2018 for each of our Diagnostics and Life Science reporting +units. As part of this assessment, fair value, as determined through a valuation performed by a third party, was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, the fair +value of each reporting unit exceeded its carrying value; therefore, each of the Diagnostics and Life Science reporting units satisfied the quantitative assessment for fiscal 2018. +Similarly, during fiscal 2017, we performed quantitative assessments as of June 30, 2017 for each of our Americas Diagnostics, Bioline and +Life Science-U.S. reporting units that existed at that time, noting the separate Magellan discussion below. As part of this assessment, fair value, as determined through a valuation performed by a third party, +was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, the fair value of each reporting unit exceeded its carrying value; therefore, each of the Americas Diagnostics, Bioline +and Life Science-U.S. reporting units satisfied the quantitative assessment for fiscal 2017. +During the quarter ended June 30, 2017, the events described below occurred, indicating that impairment of the goodwill recorded as part +of the Magellan acquisition had occurred. +On May 17, 2017, the FDA issued a field safety notice advising customers to discontinue use +of Magellan’s lead testing systems with venous blood samples. This field safety notice was followed by product recall notices on May 25 th and June 5 th . Subsequent to the issuances of these field safety and product recall notices, the FDA completed an inspection of Magellan’s quality system, and issued its Form 483, Inspectional Observations, +on June 29, 2017, which was expectedly followed by a Warning Letter issued on October 23, 2017. The Warning Letter requires periodic reporting on our remediation progress. +- 61 - +Table of Contents +In light of these factors and their impacts, during the third quarter of fiscal 2017, it was +determined that a potential impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a “triggering event”). With the assistance of an independent valuation firm, Magellan’s fair value was +calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, it was determined that the carrying value of the Magellan reporting unit did, in fact, exceed its fair value. As a result, an +impairment charge of $6,628, on both a pre-tax and after-tax basis, was recorded during the third quarter and is reflected as a separate operating expense line item +within the accompanying Consolidated Statement of Operations for the year ended September 30, 2017. This quantitative assessment as of May 31, 2017 was supplemented by a qualitative assessment of Magellan’s goodwill as of +June 30, 2017, with such assessment indicating that no additional impairment existed. +No impairments were indicated or recorded from +the analyses performed for fiscal 2018 or 2016. +During fiscal 2018, goodwill decreased $289, resulting solely from currency translation +adjustments on the goodwill of the Life Science reporting unit. The decrease of $7,056 in fiscal 2017 reflects: (i) a $767 acquisition measurement period adjustment downward related to Magellan (Diagnostics segment; see Note 3); (ii) the $6,628 +impairment charge related to Magellan; and (iii) a $339 increase from the currency translation adjustment on the goodwill of the Life Science segment. +A summary of Meridian’s acquired intangible assets subject to amortization, as of September 30, 2018 and 2017 is as follows. +2018 +2017 +As of September 30, +Gross +Carrying +Value +Accum. +Amort. +Gross +Carrying +Value +Accum. +Amort. +Manufacturing technologies, core products and cell lines +$ +22,297 +$ +13,974 +$ +22,332 +$ +12,807 +Tradenames, licenses and patents +8,647 +5,267 +8,689 +4,398 +Customer lists, customer relationships and supply agreements +24,461 +13,051 +24,562 +11,854 +Non-compete agreements +720 +720 +720 +540 +$ +56,125 +$ +33,012 +$ +56,303 +$ +29,599 +The actual aggregate amortization expense for these intangible assets for fiscal 2018, 2017 and 2016 was +$3,433, $3,776 and $2,690, respectively. The estimated aggregate amortization expense for these intangible assets for each of the five succeeding fiscal years is as follows: fiscal 2019 - $3,328, fiscal 2020 - $3,165, fiscal 2021 - $2,560, fiscal +2022 - $2,182 and fiscal 2023 - $2,170. +Long-lived assets, excluding goodwill, are reviewed for impairment when events or circumstances +indicate that such assets may not be recoverable at their carrying value. Whether an event or circumstance triggers an impairment is determined by comparing an estimate of the asset’s future undiscounted cash flows to its carrying value. If +impairment has occurred, it is measured by a fair-value based calculation. +- 62 - +Table of Contents +Our ability to recover the carrying value of our intangible assets, both identifiable +intangibles and goodwill, is dependent upon the future cash flows of the related acquired businesses and assets. We make judgments and assumptions regarding future cash flows, including sales levels, gross profit margins, operating expense levels, +working capital levels, and capital expenditures. With respect to identifiable intangibles and fixed assets, we also make judgments and assumptions regarding useful lives. +We consider the following factors in evaluating events and circumstances for possible impairment: (i) significant under-performance +relative to historical or projected operating results; (ii) negative industry trends; (iii) sales levels of specific groups of products (related to specific identifiable intangibles); (iv) changes in overall business strategies; and +(v) other factors. +If actual cash flows are less favorable than projections, this could trigger impairment of intangible assets and +other long-lived assets. If impairment were to occur, this would negatively affect overall results of operations. Aside from the Magellan matter noted above, no triggering events have been identified by the Company for fiscal 2018, 2017 or 2016. +(i) +Revenue Recognition and Accounts Receivable - Revenue is generally recognized from sales when product is +shipped and title has passed to the customer. Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. +Such fees totaled $1,453, $787, and $339 in fiscal 2018, 2017 and 2016, respectively. +Revenue for the Diagnostics +segment is reduced at the date of sale for product price adjustments due to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by +distributors, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals were $4,303 at September 30, 2018 and $4,190 at September 30, 2017, and have +been netted against accounts receivable. +Revenue for our Diagnostics segment includes revenue for our Alethia molecular test system. This system includes an instrument, instrument accessories and test kits. In markets where the test system is sold via multiple deliverable arrangements, the cost +of the instrument and instrument accessories is deferred upon placement at a customer and amortized on a straight-line basis into cost of sales over the expected utilization period, generally three years. +- 63 - +Table of Contents +We evaluate whether each deliverable in the arrangement is a separate unit of accounting. +The significant deliverables are an instrument, instrument accessories (e.g., printer) and test kits. An instrument and instrument accessories are delivered to the customer prior to the start of the customer utilization period in order to +accommodate customer set-up and installation. There is de minimis consideration received from the customer at the time of instrument placement. We have determined that the instrument and instrument +accessories are not a separate unit of accounting because such equipment can only be used to process and read the results from our Alethia diagnostic tests (i.e., our instrument and test kits function together to deliver a diagnostic test result), +and therefore the instrument and instrument accessories do not have standalone value to the customer. Consequently, there is no revenue allocated to the placement of the instrument and instrument accessories. Test kits are delivered to the customer +over the utilization period of the instrument, which we estimate has a useful life of three years. Our average customer contract period, including estimated renewals, is at least equal to the estimated three-year utilization period. Revenue for the +sale of test kits is recognized upon shipment and transfer of title to the customers. +In markets where the test system is not sold via +multiple deliverable arrangements, the cost of the instrument and instrument accessories is charged to cost of sales at the time of shipment and transfer of title to the customer. Revenue for the sales of instruments, instrument accessories and test +kits is recognized upon shipment and transfer of title to the customers. In these markets, our Alethia molecular test system is sold to independent distributors who inventory the instruments, instrument accessories and test kits for resale to +end-users. +Our products are generally not subject to a customer right of return except for product +recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and +estimable. +Trade accounts receivable are recorded in the accompanying Consolidated Balance Sheets at invoiced amounts less provisions for +distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical write-off experience +and known conditions that would likely lead to non-payment. The allowance for doubtful accounts and related metrics, such as days’ sales outstanding, are reviewed monthly. Accounts with past due balances +over 90 days are reviewed individually for collectability. Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid. +(j) +Research and Development Costs - Research and development costs are charged to expense as incurred. +Research and development costs include, among other things, salaries and wages for research scientists, materials and supplies used in the development of new products, costs for development of instrumentation equipment, costs for clinical trials, +and costs for facilities and equipment. +- 64 - +Table of Contents +(k) +Income Taxes - The provision for income taxes includes federal, foreign, state and local income +taxes currently payable and those deferred because of temporary differences between income for financial reporting and income for tax purposes. We prepare estimates of permanent and temporary differences between income for financial reporting +purposes and income for tax purposes. These differences are adjusted to actual upon filing of our tax returns, typically occurring in the third and fourth quarters of the current fiscal year for the preceding fiscal year’s estimates. +We account for uncertain tax positions using a benefit recognition model with a +two-step approach: (i) a more-likely-than-not recognition criterion; and (ii) a measurement attribute that measures the position as the largest amount of tax +benefit that is greater than 50% likely of being ultimately realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit is recorded. We recognize accrued interest +related to unrecognized tax benefits as a portion of our income tax provision in the Consolidated Statements of Operations. See Note 6. +(l) +Stock-Based Compensation - We recognize compensation expense for all share-based awards made to +employees, based upon the fair value of the share-based award on the date of the grant. See Note 7(b). +(m) +Comprehensive Income (Loss) - Comprehensive income (loss) represents the net change in +shareholders’ equity during a period from sources other than transactions with shareholders. As reflected in the accompanying Consolidated Statements of Comprehensive Income, our comprehensive income is comprised of net earnings, foreign +currency translation, unrealized losses on our cash flow hedge, and the income taxes thereon. +(n) +Shipping and Handling Costs - Shipping and handling costs invoiced to customers are included in net +revenues. Costs to distribute products to customers, including freight costs, warehousing costs, and other shipping and handling activities are included in cost of sales. +(o) +Non-Income Government-Assessed Taxes - We classify all non-income, government-assessed taxes (sales, use and value-added) collected from customers and remitted by us to appropriate revenue authorities, on a net basis (excluded from net revenues) in the accompanying +Consolidated Statements of Operations. +(p) +Recent Accounting Pronouncements - In May 2014, the FASB issued ASU +No. 2014-09, Revenue from Contracts with Customers , which supersedes and replaces nearly all currently-existing U.S. GAAP revenue recognition guidance including related disclosure requirements. +This guidance, including any clarification guidance thereon, is effective for the Company beginning October 1, 2018 (fiscal 2019). The Company anticipates that adoption of ASU 2014-09 on a modified +retrospective basis will result in the recording of an immaterial adjustment to retained earnings of approximately $150 and expanding certain disclosures, as required. +- 65 - +Table of Contents +In February 2016, the FASB issued ASU 2016-02, +Leases , which amends the accounting guidance related to leases. These changes, which are designed to increase transparency and comparability among organizations for both lessees and lessors, include, among other things, requiring recognition +of lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2020, although early adoption is +permitted. The Company expects to begin its assessment of the impact that adoption of this guidance will have on its financial statements in fiscal 2019. +In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment +Accounting , which amends the accounting for share-based payment transactions. These changes, which are designed for simplification, involve several aspects of the accounting for share-based transactions, including the income tax consequences, +classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2018, and as a result recorded $160 to the income tax provision, which +under previous guidance would have been recorded in additional paid-in capital. While the future effect of this guidance is dependent on numerous factors (e.g., the market price of the Company’s +common stock on the equity award grant date, the exercise/lapse dates of equity awards, and the market price of the Company’s common stock on such exercise/lapse dates), the effect is not expected to be material. During fiscal 2018, our tax +provision included a $180 charge for application of ASU 2016-09. +In August 2016, the FASB issued +ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments . The update addresses certain specific cash flows and their treatment, with the objective being to reduce the existing diversity in +how the items are presented and classified within the statement of cash flows. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2019, although early adoption is permitted. Adoption of this +guidance is not expected to have a significant impact on the Company’s statement of cash flows. +(q) +Reclassifications - Certain reclassifications have been made to the prior fiscal year financial +statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity. +- 66 - +Table of Contents +(2) +Restructuring +During the second quarter of fiscal 2018, the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and +Life Science, supported by a global corporate team. As part of this plan, certain functions and locations within both business units have been streamlined, including: (i) the elimination of certain executive management and commercial sales +positions; (ii) the closing of Life Science locations in Taunton, Massachusetts and Singapore, the operations of which were transferred to locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain +functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio. +A summary of the +restructuring costs recorded in fiscal 2018 is as follows: +Fiscal 2018 +Restructuring +Costs +Severance, other termination benefits and related costs +$ +5,012 +Lease and other contract termination fees +353 +Loss on fixed asset disposals and inventory scrap +225 +Other +742 +Total +$ +6,332 +The above table does not include $2,374 of CEO transition costs, which primarily represents the compensation and benefits for +our previous Executive Chairman and CEO, Mr. John A. Kraeutler, throughout fiscal 2018, the period during which we also have the compensation and benefits our new CEO, Mr. Jack Kenny, who began employment at the beginning of fiscal +2018. These CEO transition costs and the restructuring costs set forth in the table above comprise the $8,706 of restructuring costs set forth in the accompanying Consolidated Statement of Operations. +At September 30, 2018, the accrued liability associated with the restructuring costs noted above consisted of the following: +Balance as of +September 30, +2018 +Severance, other termination benefits and related costs +$ +987 +Lease and other contract termination fees +33 +Other +6 +Total accrued liability balance +$ +1,026 +- 67 - +Table of Contents +(3) +Magellan Acquisition +On March 24, 2016, we acquired all of the outstanding common stock of Magellan Biosciences, Inc., and its wholly-owned subsidiary Magellan Diagnostics, +Inc. (collectively, “Magellan”), for $67,874, utilizing the proceeds from a new $60,000 five-year term loan and cash and equivalents on hand. During fiscal 2018, following the filing of our U.S. tax return and the realization of tax +benefits for certain net operating loss carryforwards, the final amount of acquisition consideration totaling approximately $2,100 was paid to the sellers, resulting in no such amounts payable as of September 30, 2018. Headquartered near +Boston, Massachusetts, Magellan is a leading manufacturer of FDA-cleared products for the point-of-care testing of blood to +diagnose lead poisoning in children and adults. +As a result of the consideration paid exceeding the preliminary fair value of the net assets acquired, +goodwill in the amount of $40,591 was originally recorded in connection with this acquisition, none of which is deductible for tax purposes. As of June 30, 2017, the goodwill recorded in connection with the acquisition was written down to +$33,963, which remains the balance at September 30, 2018 (see Note 1(h) for a discussion of the $6,628 impairment write-down). This goodwill results largely from the addition of Magellan’s complementary customer base and distribution +channels, and its industry reputation in the U.S. as a leader in lead testing. +(4) +Inventories +Inventories are comprised of the following: +As of September 30, +2018 +2017 +Raw materials +$ +6,689 +$ +6,575 +Work-in-process +12,098 +11,559 +Finished goods - instruments +1,191 +1,460 +Finished goods - kits and reagents +22,015 +21,899 +Total +$ +41,993 +$ +41,493 +(5) +Bank Credit Arrangements +In connection with the acquisition of Magellan (see Note 3), on March 22, 2016 the Company entered into a $60,000 five-year term loan with a commercial +bank. The term loan requires quarterly principal and interest payments, with interest at a variable rate tied to LIBOR, and a balloon principal payment due March 31, 2021. The required principal payments on the term loan for each of the +remaining fiscal years are as follows: fiscal 2019 - $5,250, fiscal 2020 - $6,000, and fiscal 2021 - $39,000. In light of the term loan’s interest being determined on a variable rate basis, the fair value of the term loan at September 30, +2018 approximates the current carrying value reflected in the accompanying Consolidated Balance Sheet. +- 68 - +Table of Contents +In order to limit exposure to volatility in the LIBOR interest rate, the Company and the commercial bank +also entered into an interest rate swap that effectively converts the variable interest rate on the term loan to a fixed rate of 2.76%. With an initial notional balance of $60,000, the interest rate swap was established with critical terms identical +to those of the term loan, including: (i) notional reduction amounts and dates; (ii) LIBOR settlement rates; (iii) rate reset dates; and (iv) term/maturity. Due to this, the interest swap has been designated as an effective cash +flow hedge, with changes in fair value reflected as a separate component of other comprehensive income in the accompanying Consolidated Statements of Comprehensive Income. At September 30, 2018 and 2017, the fair value of the interest rate swap +was an asset of $1,722 and $815, respectively, and is reflected as a non-current asset in the accompanying Consolidated Balance Sheets. This fair value was determined by reference to a third-party valuation, +and is considered a Level 2 input within the fair value hierarchy of valuation techniques. +In addition, the Company maintains a $30,000 revolving +credit facility with a commercial bank, which expires March 31, 2021. There were no borrowings outstanding on this revolving credit facility at September 30, 2018 or September 30, 2017. +The term loan and revolving credit facility are collateralized by the business assets of the Company’s U.S. subsidiaries and require compliance with +financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the borrowing agreement. As of September 30, 2018, the Company is in compliance with all covenants. The +Company is also required to maintain a cash compensating balance with the bank in the amount of $1,000, and is in compliance with this requirement. +(6) +Income Taxes +(a) +Earnings before income taxes, and the related provision for income taxes for the years ended September 30, +2018, 2017 and 2016 were as follows: +Year Ended September 30, +2018 +2017 +2016 +Domestic +$ +27,787 +$ +31,885 +$ +44,795 +Foreign +2,593 +4,544 +5,849 +Total earnings before income taxes +$ +30,380 +$ +36,429 +$ +50,644 +Provision (credit) for income taxes - +Federal - +Current +$ +6,030 +$ +11,262 +$ +16,178 +Temporary differences +Fixed asset basis differences and depreciation +410 +(181 +) +(45 +) +Intangible asset basis differences and amortization +(4,052 +) +(1,158 +) +(744 +) +Currently non-deductible expenses and reserves +1,206 +884 +(694 +) +Stock-based compensation +1,379 +(635 +) +129 +Net operating loss carryforwards utilized +61 +1,831 +— +Tax credit carryforwards utilized +181 +67 +41 +Other, net +(148 +) +99 +181 +Subtotal +5,067 +12,169 +15,046 +State and local +1,066 +1,900 +2,421 +Foreign +398 +803 +948 +Total income tax provision +$ +6,531 +$ +14,872 +$ +18,415 +- 69 - +Table of Contents +(b) +The following is a reconciliation between the statutory U.S. income tax rate and the effective rate derived by +dividing the provision for income taxes by earnings before income taxes: +Year Ended September 30, +2018 +2017 +2016 +Computed income taxes at statutory rate +$ +7,443 +24.5 +% +$ +12,750 +35.0 +% +$ +17,719 +35.0 +% +Increase (decrease) in taxes resulting from - +State and local income taxes +982 +3.2 +1,093 +3.0 +1,329 +2.6 +U.S. tax law change +(2,655 +) +(8.7 +) +— +— +— +— +One-time repatriation tax +876 +2.9 +— +— +— +— +Foreign tax rate differences +(104 +) +(0.3 +) +(281 +) +(0.8 +) +(337 +) +(0.7 +) +Qualified domestic production incentives +(550 +) +(1.8 +) +(1,012 +) +(2.8 +) +(1,290 +) +(2.5 +) +Acquisition-related costs +— +— +— +— +215 +0.4 +Uncertain tax position activity +(62 +) +(0.2 +) +134 +0.4 +122 +0.2 +Goodwill impairment charge +— +— +2,320 +6.4 +— +— +Valuation allowance +(40 +) +(0.1 +) +— +— +327 +0.7 +Stock-based compensation +447 +1.4 +— +— +— +— +Other, net +194 +0.6 +(132 +) +(0.4 +) +330 +0.7 +$ +6,531 +21.5 +% +$ +14,872 +40.8 +% +$ +18,415 +36.4 +% +On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the +“tax reform act”). We have completed the accounting for the tax reform act and the following effects are reflected within the consolidated financial statements for the year ended September 30, 2018: (i) a tax benefit of $2,655, +primarily from the re-measurement of deferred tax assets and liabilities; and (ii) $876 of tax expense for the mandatory U.S. repatriation transition tax. The +re-measurement of deferred tax assets and liabilities reflects the realization of temporary differences during fiscal 2018 at a transitional blended federal rate of 24.5%, with the remaining temporary +differences being re-measured at the 21% federal rate. +(c) +The components of net deferred tax liabilities were as follows: +As of September 30, +2018 +2017 +Deferred tax assets - +Valuation reserves and non-deductible expenses +$ +1,473 +$ +1,762 +Stock compensation expense not deductible +2,033 +3,367 +Net operating loss and tax credit carryforwards +433 +743 +Basis difference in equity-method investee +302 +302 +Inventory basis differences +383 +1,269 +Other +(530 +) +(289 +) +Subtotal +4,094 +7,154 +Less valuation allowance +(302 +) +(342 +) +Deferred tax assets +3,792 +6,812 +Deferred tax liabilities - +Fixed asset basis differences and depreciation +(1,913 +) +(1,325 +) +Intangible asset basis differences and amortization +(5,518 +) +(9,784 +) +Deferred tax liabilities +(7,431 +) +(11,109 +) +Net deferred tax liabilities +$ +(3,639 +) +$ +(4,297 +) +- 70 - +Table of Contents +For income tax purposes, we have recorded deferred tax assets related to operating loss and tax credit +carryforwards in both U.S. and foreign jurisdictions totaling $303 and $130, respectively, as of September 30, 2018. At September 30, 2017, such deferred tax assets totaled $546 and $197, respectively. The operating loss carryforwards in +foreign jurisdictions have no expiration date. The operating loss carryforwards in the U.S. expire between 2023 and 2036 at the federal level, and between 2028 and 2036 at the state level. The aggregate amount of federal, state and foreign operating +loss carryforwards totaled $490, $2,186 and $381, respectively, at September 30, 2018. The use of the federal and state losses is limited by the change of ownership provisions of the Internal Revenue Code. +The realization of deferred tax assets is dependent upon the generation of future taxable income in the applicable jurisdictions. We have considered the +levels of currently anticipated pre-tax income in U.S. and foreign jurisdictions in assessing the required level of the deferred tax asset valuation allowance including the characterization of the income as +ordinary or capital. Taking into consideration historical and current operating results, and other factors, we believe that it is more likely than not that the net deferred tax asset of $3,792 will be realized. The amount of the net deferred tax +asset considered realizable, however, could be reduced in future years if estimates of future taxable income are reduced. +As described in Note 1, we +utilize a comprehensive model for the recognition, measurement, presentation and disclosure of uncertain tax positions, assuming full knowledge of all relevant facts by the applicable tax authorities. The total amount of unrecognized tax benefits at +September 30, 2018 and September 30, 2017 related to such positions was $262 and $517, respectively, of which $150 would favorably impact the effective tax rate if recognized. We generally recognize interest and penalties related to +uncertain tax positions as a component of our income tax provision. During fiscal 2018 and 2017, such penalties and interest totaled approximately $84 and $35, respectively. We had approximately $162 accrued for the payment of interest and penalties +at September 30, 2018 compared to $165 accrued at September 30, 2017. The amount of our liability for uncertain tax positions expected to be paid or settled in the next 12 months is uncertain. +A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: +2018 +2017 +Unrecognized income tax benefits beginning of year +$ +517 +$ +502 +Additions for tax positions of prior years +— +144 +Tax examination and other settlements +(161 +) +(129 +) +Expiration of statute of limitations +(94 +) +— +Unrecognized income tax benefits at end of year +$ +262 +$ +517 +We are subject to examination by the tax authorities in the U.S. (both federal and state) and the countries of Australia, +Belgium, China, England, France, Germany, Holland, Italy and Singapore. In the U.S., open tax years are fiscal 2015, fiscal 2016 and fiscal 2017. In countries outside the U.S., open tax years generally range from fiscal 2013 and forward. However, in +Australia, Belgium and Singapore, the utilization of local net operating loss carryforwards extends the statute of limitations for examination well into the foreseeable future. To the extent that adjustments result from the completion of these +examinations or the lapsing of statutes of limitation, they will affect tax liabilities in the period known. We believe that the results of any tax authority examinations would not have a significant adverse impact on our financial condition or +results of operations. +- 71 - +Table of Contents +(7) +Employee Benefits +(a) +Savings and Investment Plan - We have a profit sharing and retirement savings plan covering +substantially all full-time U.S. employees. Profit sharing contributions to the plan, which are discretionary, are approved by the board of directors. The plan permits participants to contribute to the plan through salary reduction. Under terms of +the plan, we match 100% of an employee’s contributions, up to a maximum match of 4% of eligible compensation (3% through December 31, 2016). Our discretionary and matching contributions to the plan amounted to approximately $2,118, $1,912 +and $1,631, during fiscal 2018, 2017 and 2016, respectively. +(b) +Stock-Based Compensation Plans - During fiscal 2018, we had two active stock-based compensation plans, +the 2004 Equity Compensation Plan, which became effective December 7, 2004, as amended (the “2004 Plan”) and the 2012 Stock Incentive Plan, which became effective January 25, 2012 (the “2012 Plan”). +Each of the 2004 Plan and 2012 Plan authorized the granting of new shares for options, restricted shares or restricted +share units for up to 3,000 shares, with the non-granted portion of the 2004 Plan permitted to be carried forward and added to the 2012 Plan authorized limit. As of September 30, 2018, we have granted +1,338 and 1,955 shares under the 2004 Plan and 2012 Plan, respectively, thereby resulting in a remaining authorized limit of 2,707 shares. Options may be granted at exercise prices not less than 100% of the closing market value of the underlying +common shares on the date of grant and have maximum terms up to ten years. Vesting schedules for options, restricted shares and restricted share units are established at the time of grant and may be set based on future service periods, achievement +of performance targets or a combination thereof. All options contain provisions restricting their transferability and limiting their exercise in the event of termination of employment or the disability or death of the optionee. We recognize +compensation expense for all share-based payments made to employees, based upon the fair value of the share-based payment on the date of the grant. +During fiscal years 2016 through 2018, we granted, in the aggregate for the three-year period, approximately 1,220 restricted share units (with +a weighted-average grant date fair values of $19.38 per share in fiscal 2016, $16.93 per share in fiscal 2017 and $14.65 per share in fiscal 2018) to certain employees, generally with half of each employee’s grant being time-vested restricted +share units vesting in total on the fourth anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target for each fiscal period. While dividend equivalents were paid on these units throughout each +fiscal period, the targets for each fiscal period were not met and the performance-based portion of these restricted share units granted were cancelled. +- 72 - +Table of Contents +During each of fiscal 2016 and fiscal 2017 in connection with his Amended and Restated +Employment Agreement, we also granted to our Chairman and Chief Executive Officer at that time, Mr. John A. Kraeutler, 25 restricted share units (with a grant date fair value of $17.03 per share in fiscal 2016 and $19.09 per share in +fiscal 2017), with each respective grant to be earned only if specified revenue and earnings per share targets were achieved for each of fiscal 2016 and fiscal 2017. As a result of the performance targets not being achieved in either fiscal 2016 or +fiscal 2017, the restricted share units related to both grants have been cancelled. +Additionally, during fiscal 2018 in connection with +the October 9, 2017 employment of the Company’s new Chief Executive Officer, Mr. Jack Kenny, we granted to Mr. Kenny: (i) options to purchase 100 shares of common stock of the Company (with a grant date fair value of $3.19 +per share) vesting on a pro rata basis over four years; and (ii) 13 restricted share units (with a grant date fair value of $14.50 per share) vesting 100% on the second anniversary of the grant. Also during fiscal 2018 in connection with his Amended +and Restated Employment Agreement, we granted to our Chairman and Chief Executive Officer at that time, Mr. John A. Kraeutler, 25 restricted share units (with a grant date fair value of $15.30 per share) to be earned only if specified +revenue and earnings per share targets were achieved for fiscal 2018. As a result of the fiscal 2018 performance targets related to this grant being achieved, these restricted share units have fully vested. +Giving effect to these grants, cancellations and certain other activities for restricted shares and restricted share units throughout the +years, including conversions to common shares, forfeitures, and new hire and employee promotion grants, approximately 555 restricted share units remain outstanding as of September 30, 2018, with a weighted-average grant date fair value of +$16.69 per share, a weighted-average remaining vesting period of 1.63 years and an aggregate intrinsic value of $8,272. The weighted-average grant date fair value of the approximate 175 restricted share units that vested during fiscal 2018 was +$21.32 per share. +The amount of stock-based compensation expense reported was $3,402, $3,381 and $2,911 in fiscal 2018, 2017 and 2016, +respectively. The fiscal 2018 expense is comprised of $793 related to stock options and $2,609 related to restricted share units; the fiscal 2017 expense is comprised of $662 related to stock options and $2,719 related to restricted share units; and +the fiscal 2016 expense is comprised of $560 related to stock options and $2,351 related to restricted share units. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $303, $861 and +$1,100, for fiscal 2018, 2017 and 2016, respectively. As of September 30, 2018, we expect future stock compensation expense for unvested options and unvested restricted share units to total $571 and $2,317, respectively, which will be +recognized during fiscal years 2019 through 2023. +- 73 - +Table of Contents +We recognize compensation expense only for the portion of shares that we expect to vest. As +such, we apply estimated forfeiture rates to our compensation expense calculations. These rates have been derived using historical forfeiture data, stratified by several employee groups. During fiscal 2018, 2017 and 2016, we recorded $106, $106 and +$76, respectively, in stock compensation expense to adjust estimated forfeiture rates to actual, noting that total fiscal 2018 stock compensation expense reflects the effect of terminations made in connection with the restructuring activities +discussed in Note 2. +We have elected to use the Black-Scholes option pricing model to determine grant-date fair value for stock options, +with the following assumptions: (i) expected share price volatility based on the average of Meridian’s historical volatility over the options’ expected lives and implied volatility based on the value of tradable call options; +(ii) expected life of options based on contractual lives, employees’ historical exercise behavior and employees’ historical post-vesting employment termination behavior; (iii) risk-free interest rates based on treasury rates that +correspond to the expected lives of the options; and (iv) dividend yield based on the expected yield on underlying Meridian common stock. +Year ended September 30, +2018 +2017 +2016 +Risk-free interest rates +2.10 +% +1.34 +% +1.63 +% +Dividend yield +3.3 +% +4.1 +% +4.4 +% +Life of option +6.47 yrs. +6.44 yrs. +6.39 yrs. +Share price volatility +30 +% +27 +% +31 +% +Forfeitures (by employee group) +0%-16 +% +0%-19 +% +0%-16 +% +A summary of the status of our stock option plans as of September 30, 2018, and changes during the year +ended September 30, 2018, is presented in the table and narrative below: +Options +Wtd Avg +Exercise +Price +Wtd Avg +Remaining +Life (Yrs) +Aggregate +Intrinsic +Value +Outstanding beginning of period +942 +$ +19.98 +Grants +479 +14.85 +Exercises +(12 +) +14.65 +Forfeitures +(184 +) +15.38 +Cancellations +(130 +) +28.36 +Outstanding end of period +1,095 +$ +17.56 +7.02 +$ +249 +Exercisable end of period +706 +$ +18.70 +5.98 +$ +147 +- 74 - +Table of Contents +A summary of the status of our nonvested options as of September 30, 2018, and changes +during the year ended September 30, 2018, is presented below: +Options +Weighted- +Average +Grant Date +Fair Value +Nonvested beginning of period +281 +$ +3.00 +Granted +479 +3.27 +Vested +(188 +) +3.09 +Forfeitures +(83 +) +2.99 +Cancelled +(100 +) +3.22 +Nonvested end of period +389 +$ +3.24 +The weighted average grant-date fair value of options granted was $3.27, $2.65 and $3.46 for fiscal 2018, 2017 +and 2016, respectively. The total intrinsic value of options exercised was $2, $9 and $616 for fiscal 2018, 2017 and 2016, respectively. The total grant-date fair value of options that vested during fiscal 2018, 2017 and 2016 was $580, $494 and +$474, respectively. +Cash received from options exercised was $183, $302 and $2,364 for fiscal 2018, 2017 and 2016, respectively. Tax +expense recorded to additional paid-in capital from option exercises totaled $0, $431 and $70 for fiscal 2018, 2017 and 2016, respectively. +(8) +Non-Current Liabilities +The Company has provided certain post-employment benefits to its former Executive Chairman (formerly Chairman and Chief Executive Officer), and these +obligations total $1,864 and $1,613 at September 30, 2018 and 2017, respectively. In addition, we are required by the governments of certain foreign countries in which we operate to maintain a level of reserves for potential future severance +indemnity. These reserves total $713 and $652 at September 30, 2018 and 2017, respectively. +(9) +Reportable Segments and Major Concentration Data +Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in +Cincinnati, Ohio, and manufacturing operations for products detecting elevated lead levels in blood in Billerica, Massachusetts (near Boston), and the sale and distribution of diagnostics products domestically and abroad. The Life Science segment +consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and bioresearch +reagents domestically and abroad, including a sales and business development facility in Beijing, China to further pursue growing revenue opportunities in Asia. +- 75 - +Table of Contents +Revenues from individual customers constituting 10% or more of consolidated net revenues are as follows: +Year Ended September 30, +2018 +2017 +2016 +Customer A +$ +22,490 +(11 +)% +$ +22,397 +(11 +)% +$ +20,246 +(10 +)% +Customer B +$ +22,040 +(10 +)% +$ +17,825 +(9 +)% +$ +19,585 +(10 +)% +Accounts receivable from these two Diagnostics customers accounted for 12% and 11% of consolidated accounts receivable at +September 30, 2018 and September 30, 2017, respectively. The Company’s international revenues totaled approximately $67,170, $61,812 and $54,606 in fiscal 2018, 2017 and 2016, respectively, and our three major product families – +gastrointestinal, respiratory illnesses and blood chemistry – accounted for 59%, 60% and 66% of consolidated net revenues in fiscal 2018, 2017 and 2016, respectively. We currently purchase on a sole-source basis from a U.S. and an Italian +manufacturer, respectively, the instruments on which our Alethia molecular testing platform operates and the LeadCare instruments used to test for blood lead levels. Additionally, two of our foodborne products sourced from another vendor accounted +for 9%, 10% and 11% of third-party revenues for our Diagnostics segment in fiscal 2018, 2017 and 2016, respectively. +Significant revenue information by +country for the Diagnostics and Life Science segments is as follows. Revenues are attributed to the geographic area based on the location to which the product is delivered. +Year Ended September 30, +2018 +2017 +2016 +United States +$ +125,959 +$ +119,332 +$ +122,264 +Italy +7,648 +6,601 +6,717 +France +2,363 +1,856 +1,619 +United Kingdom +2,337 +1,789 +2,018 +Belgium +1,719 +1,517 +1,471 +Holland +1,460 +1,297 +1,215 +Japan +1,263 +2,209 +1,665 +Other countries +7,705 +8,920 +8,145 +Total Diagnostics +$ +150,454 +$ +143,521 +$ +145,114 +Year Ended September 30, +2018 +2017 +2016 +United States +$ +20,442 +$ +19,627 +$ +19,212 +China +8,329 +5,893 +4,077 +Germany +8,198 +7,400 +6,999 +United Kingdom +5,190 +5,574 +5,581 +Spain +4,179 +3,206 +2,917 +Australia +3,617 +3,999 +3,163 +South Korea +2,040 +2,306 +1,043 +France +2,037 +1,791 +1,054 +Japan +1,928 +1,374 +1,542 +Other countries +7,157 +6,080 +5,380 +Total Life Science +$ +63,117 +$ +57,250 +$ +50,968 +- 76 - +Table of Contents +In locations outside the U.S., the Company’s identifiable assets were concentrated as follows at the +end of most recent fiscal years: +As of September 30, 2018 : U.K – $14,816; Germany – $7,706; Italy +– $7,334; and Australia – $3,543 +As of September 30, 2017 : U.K – $15,755; Germany – $6,915; +Italy – $7,712; and Australia – $4,376 +Segment information for the years ended September 30, 2018, 2017 and 2016 is as follows: +Diagnostics +Life Science +Unallocated +Costs and +Eliminations +(1) +Total +Fiscal Year 2018 - +Net revenues – +Third-party +$ +150,454 +$ +63,117 +$ +— +$ +213,571 +Inter-segment +392 +397 +(789 +) +— +Operating income +29,701 +14,912 +(13,029 +) +31,584 +Depreciation and amortization +6,557 +2,131 +— +8,688 +Capital expenditures +2,477 +1,724 +— +4,201 +Goodwill +35,213 +19,424 +— +54,637 +Other intangible assets +22,068 +1,045 +— +23,113 +Total assets +180,978 +70,341 +58 +251,377 +Fiscal Year 2017 - +Net revenues – +Third-party +$ +143,521 +$ +57,250 +$ +— +$ +200,771 +Inter-segment +389 +537 +(926 +) +— +Operating income +23,848 +14,086 +(552 +) +37,382 +Depreciation and amortization +7,037 +2,053 +— +9,090 +Capital expenditures +2,554 +1,913 +— +4,467 +Goodwill +35,213 +19,713 +— +54,926 +Other intangible assets +24,973 +1,731 +— +26,704 +Total assets +180,226 +69,938 +(387 +) +249,777 +Fiscal Year 2016 - +Net revenues – +Third-party +$ +145,114 +$ +50,968 +$ +— +$ +196,082 +Inter-segment +289 +893 +(1,182 +) +— +Operating income +38,202 +12,997 +179 +51,378 +Depreciation and amortization +5,471 +2,247 +— +7,718 +Capital expenditures +2,690 +1,314 +— +4,004 +Goodwill +42,608 +19,374 +— +61,982 +Other intangible assets +27,534 +2,321 +— +29,855 +Total assets +185,446 +66,624 +(42 +) +252,028 +(1) +Unallocated costs for the fiscal years 2018 and 2017 total $13,051 and $762, respectively, and are comprised of +Restructuring and Litigation Costs, as set forth within the accompanying Condensed Consolidated Statements of Operations. Eliminations consist of inter-segment transactions. +- 77 - +Table of Contents +A reconciliation of segment operating expenses to consolidated earnings before income taxes for the years +ended September 30, 2018, 2017 and 2016 is as follows: +Year Ended September 30, +2018 +2017 +2016 +Segment operating income +$ +44,635 +$ +38,144 +$ +51,378 +Restructuring and litigation costs +(13,051 +) +(762 +) +— +Interest income +418 +171 +67 +Interest expense +(1,520 +) +(1,642 +) +(897 +) +Other, net +(102 +) +518 +96 +Consolidated earnings before income taxes +$ +30,380 +$ +36,429 +$ +50,644 +Transactions between segments are accounted for at established intercompany prices for internal and management purposes with +all intercompany amounts eliminated in consolidation. +(10) +Commitments and Contingencies +(a) +Royalty Commitments - We have entered into various license agreements that require payment of royalties +based on a specified percentage of the sales of licensed products. Approximately 86% of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from 4% to 8%. These royalty expenses are recognized on an as-earned basis and recorded in the year earned as a component of cost of sales. Annual royalty expenses associated with these agreements were approximately $2,579, $2,600 and $3,134 for the fiscal years ended +September 30, 2018, 2017 and 2016, respectively. +(b) +Purchase Commitments - Excluding the operating lease commitments reflected in Note 10(c) below, +we have purchase commitments primarily for inventory and service items as part of the normal course of business. Commitments made under these obligations are $11,271 for fiscal 2019 and $127 for fiscal 2020 through fiscal 2023. No purchase +commitments have been made beyond fiscal 2023. +(c) +Operating Lease Commitments - Meridian and its subsidiaries are lessees of: (i) certain +office and warehouse buildings in the U.S., Europe, Australia and China; (ii) automobiles for use by the direct sales forces in the U.S. and Europe; and (iii) certain office equipment such as facsimile and copier machines across all +business units, under operating lease agreements that expire at various dates. Amounts charged to expense under operating leases were $2,457, $2,140 and $1,966 for fiscal 2018, 2017 and 2016, respectively. Operating lease commitments for each of the +five succeeding fiscal years are as follows: fiscal 2019 - $1,866; fiscal 2020 - $1,700; fiscal 2021 - $1,461; fiscal 2022 - $978; and fiscal 2023 - $876. +(d) +Litigation - We are a party to various litigation matters from time to time that we believe are in the +normal course of business. The ultimate resolution of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows. See Item 3. “Legal Proceedings” for a discussion of the +status of certain litigation. +- 78 - +Table of Contents +(e) +Indemnifications - In conjunction with certain contracts and agreements, we provide routine +indemnifications related to our performance obligations. The terms of these indemnifications range in duration and in some circumstances are not explicitly defined. The maximum obligation under some such indemnifications is not explicitly stated +and, as a result of our having no history of paying such indemnifications, cannot be reasonably estimated. We have not made any payments for these indemnifications and no liability is recorded at September 30, 2018 or September 30, 2017. +(11) +Quarterly Financial Data (Unaudited) +The sum of the earnings per common share may not equal the corresponding annual amounts due to interim quarter rounding. +For the Quarter Ended in Fiscal 2018 +December 31 +March 31 +June 30 +September 30 +Net revenues +$ +52,283 +$ +56,451 +$ +51,737 +$ +53,100 +Gross profit +31,786 +34,569 +31,956 +32,150 +Net earnings +6,302 +5,288 +6,825 +5,434 +Basic earnings per common share +0.15 +0.12 +0.16 +0.13 +Diluted earnings per common share +0.15 +0.12 +0.16 +0.13 +Cash dividends per common share +0.125 +0.125 +0.125 +0.125 +For the Quarter Ended in Fiscal 2017 +December 31 +March 31 +June 30 +September 30 +Net revenues +$ +46,809 +$ +54,125 +$ +50,140 +$ +49,697 +Gross profit +29,039 +33,477 +31,146 +30,630 +Net earnings +6,279 +9,312 +240 +5,726 +Basic earnings per common share +0.15 +0.22 +0.01 +0.14 +Diluted earnings per common share +0.15 +0.22 +0.01 +0.13 +Cash dividends per common share +0.200 +0.125 +0.125 +0.125 +(12) +Subsequent Events +On October 9, 2018, the Company and DiaSorin Inc. entered into a strategic collaboration to sell DiaSorin’s Helicobacter pylori stool antigen +test to detect H. pylori for use on its automated LIAISON platform under the Meridian brand name worldwide. The new collaboration results in the termination of all pending legal disputes between the two parties and will expand the previous +agreement between DiaSorin and Meridian, which focused on the sale, by DiaSorin, of co-developed products in major countries in continental Europe. +- 79 - +Table of Contents +ITEM 9. +CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS +ON ACCOUNTING AND FINANCIAL DISCLOSURE +Not applicable. +ITEM +9A. +CONTROLS AND PROCEDURES +As of +September 30, 2018, an evaluation was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our +disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange +Act”). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2018. There have been no changes in our internal control over financial +reporting identified in connection with the evaluation of internal control that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other +factors that could significantly affect internal control subsequent to September 30, 2018. +Our internal control report is included in this Annual +Report on Form 10-K after Item 8, under the caption “Management’s Report on Internal Control over Financial Reporting.” +ITEM 9B. +OTHER INFORMATION +Not applicable. +- 80 - +Table of Contents +PART III. +The information required by Items 10, 11, 12 (other than that portion set forth +below), 13 and 14, of Part III are incorporated by reference from the Registrant’s Proxy Statement for its 2019 Annual Shareholders’ Meeting to be filed with the Commission pursuant to +Regulation 14A. +The following information regarding the Company’s directors and executive officers is provided pursuant to Exchange Act Rule 14a-3(b)(8): +DIRECTORS +James M. Anderson +David C. Phillips +Retired President and Chief Executive Officer, +Co-founder, +Cincinnati Children’s Hospital Medical Center +Cincinnati Works, Inc. +Dwight E. Ellingwood +John M. Rice, Jr. +President, +Managing Partner, +D.E.E. Strategy Consulting, LLC +Triathlon Medical Ventures Partners +Jack Kenny +Catherine A. Sazdanoff +Chief Executive Officer, +Business Advisor, +Meridian Bioscience, Inc. +Strata Oncology, Inc. +John C. McIlwraith +Felicia Williams +Managing Director, +Executive Vice President, Controller and Enterprise Risk, +Allos Ventures +Macy’s, Inc. +OFFICERS AND EXECUTIVES +Jack Kenny +Chief Executive Officer +Lawrence J. Baldini +Eric S. Rasmussen +Executive Vice President, +Executive Vice President, +Global Operations +Corporate Development +Melissa A. Lueke +Lourdes G. Weltzien +Executive Vice President, +Executive Vice President, +Chief Financial Officer and Secretary +Life Science +- 81 - +Table of Contents +ITEM 12. +EQUITY COMPENSATION PLAN INFORMATION +The +following table presents summary information as of September 30, 2018 with respect to all of our equity compensation plans (number of securities information in thousands). +Plan Category +(a) +Number of +Securities to be +issued upon +exercise of +outstanding +options, warrants +and +rights +(b) +Weighted- +average exercise +price of +outstanding +options, +warrants and +rights +(c) +Number of securities +remaining available +for future issuance +under equity +compensation +plans +(excluding securities +reflected in column +(a)) +Equity compensation plans approved by security holders (1) +1,095 +$ +17.561 +2,707 +Total (2) +1,095 +$ +17.561 +2,707 +(1) +2004 Equity Compensation Plan, as amended +2012 Stock Incentive Plan +(2) +Weighted-average remaining term of 7.02 years +ITEM 15. +EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) +(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES. +All financial statements and schedules required to be filed by Item 8 of this Form and included in this report have been so identified under Item 8. No +additional financial statements or schedules are being filed since the requirements of paragraph (c) under Item 15 are not applicable to Meridian. +(b) +(3) EXHIBITS. +Exhibit +Number +Description of Exhibit +3.1 +Articles of Incorporation, including amendments not related to Company name change (Incorporated by reference to Registration Statement No. 333-02613 on Form S-3 filed with the Securities and Exchange Commission on April +18, 1996 and Meridian’s Form 8-K filed with the Securities and Exchange Commission on May 16, 2007) +3.2 +Amended and Restated Code of Regulations (Incorporated by reference to Meridian’s Form 8-K filed +with the Securities and Exchange Commission on September 24, 2018) +- 82 - +Table of Contents +10.1* +Amendment No. 1 to Supplemental Benefit Agreement Dated September 23, 2014 between Meridian and John A. Kraeutler (Incorporated by reference to +Meridian’s Form 8-K filed with the Securities and Exchange Commission on September 25, 2014) +10.2* +Third Amended and Restated Employment Agreement Dated October +3, 2016 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on October 5, 2016) +10.3* +Employment Agreement dated October 9, 2017 between Meridian and John P. Kenny (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on October 11, 2017) +10.4* +Dividend Reinvestment Plan (Incorporated by reference to Meridian’s Annual Report on Form 10-K for +the Fiscal Year Ended September 30, 1999) +10.5* +2004 Equity Compensation Plan, amended and restated effective January +25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2011) +10.6* +2012 Stock Incentive Plan, effective January 25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2011) +10.7* +Form of Time-Based Restricted Share Unit Award Agreement (Filed herewith) +10.8* +Form of Meridian Bioscience, Inc. Change in Control Agreement dated August +4, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2016) +10.9 +Agreement and Plan of Merger among Meridian Bioscience, Inc., Mariner Merger Sub, Inc., Magellan Biosciences, Inc. and Ampersand 2006 Limited +Partnership as the Stockholder Representative dated as of March 24, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2016) +10.10 +Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc. Meridian Life Science, +Inc. and Fifth Third Bank dated August 1, 2007 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2007) +10.10.1 +Term Note among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc. Meridian Life Science, Inc., Bioline USA, +Inc. and Fifth Third Bank dated March 22, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Fiscal Quarter Ended March 31, 2016) +10.10.2 +Amended and Restated Revolving Note with Fifth Third Bank dated March +22, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Fiscal Quarter Ended March 31, 2016) +10.10.3 +First Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., +Meridian Life Science, Inc. and Fifth Third Bank dated September 2, 2010 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2010) +- 83 - +Table of Contents +10.10.4 +Second Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., +Meridian Life Science, Inc. and Fifth Third Bank dated December 1, 2010 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Fiscal Quarter Ended December 31, 2010) +10.10.5 +Third Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian +Life Science, Inc. and Fifth Third Bank dated September 15, 2012 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2012) +10.10.6 +Fifth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian +Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated April 21, 2015 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Fiscal Quarter Ended June 30, +2015) +10.10.7 +Sixth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian +Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated March 22, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Fiscal Quarter Ended March 31, +2016) +10.10.8 +Seventh Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., +Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated February 6, 2017 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended +September 30, 2017) +10.10.9 +Eighth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., +Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank dated July 20, 2017 (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended +September 30, 2017) +10.10.10 +Ninth Amendment to Loan and Security Agreement among Meridian Bioscience, Inc., Meridian Bioscience Corporation, Omega Technologies, Inc., Meridian Life Science, Inc., Bioline USA, Inc. and Fifth Third Bank +dated September 24, 2018 (Filed herewith) +14 +Code of Ethics (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal +Year Ended September 30, 2003) +21 +Subsidiaries of the Registrant (Filed herewith) +23 +Consent of Independent Registered Public Accounting Firm (Filed herewith) +31.1 +Certification of Principal Executive Officer required by Rule 13a-14(a) (Filed herewith) +31.2 +Certification of Principal Financial Officer required by Rule 13a-14(a) (Filed herewith) +32 +Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (Filed herewith) +- 84 - +Table of Contents +101 +The following financial information from Meridian Bioscience Inc.’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018 filed with the SEC on November 29, +2018, formatted in XBRL includes: (i) Consolidated Statements of Operations for the years ended September 30, 2018, 2017 and 2016; (ii) Consolidated Statements of Comprehensive Income for the years ended September 30, 2018, 2017 and +2016; (iii) Consolidated Statements of Cash Flows for the years ended September 30, 2018, 2017 and 2016; (iv) Consolidated Balance Sheets as of September 30, 2018 and 2017; (v) Consolidated Statements of Shareholders’ Equity for the +years ended September 30, 2018, 2017 and 2016; and (vi) the Notes to Consolidated Financial Statements +* +Management Compensatory Contracts +Meridian will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Meridian’s reasonable +expenses in furnishing such exhibit. +ITEM 16. +FORM 10-K SUMMARY +None. +- 85 - +Table of Contents +SIGNATURES +Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its +behalf by the undersigned, thereunto duly authorized. +MERIDIAN BIOSCIENCE, INC. +By: +/s/ Jack Kenny +Date: +November 29, 2018 +Jack Kenny +Chief Executive Officer +We, the undersigned directors and officers of the Registrant, hereby severally constitute Jack Kenny and Melissa A. +Lueke, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to the Annual Report on Form +10-K filed with the Securities and Exchange Commission. +Pursuant to the requirements of the Securities Exchange +Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +Capacity +Date +/s/ Jack Kenny +Chief Executive Officer and Director +November 29, 2018 +Jack Kenny +/s/ Melissa A. Lueke +Executive Vice President, Chief +November 29, 2018 +Melissa A. Lueke +Financial Officer, and Secretary +(Principal +Financial and Accounting Officer) +/s/ David C. Phillips +Chairman of the Board +November 29, 2018 +David C. Phillips +/s/ James M. Anderson +Director +November 29, 2018 +James M. Anderson +/s/ Dwight E. Ellingwood +Director +November 29, 2018 +Dwight E. Ellingwood +/s/ John C. McIlwraith +Director +November 29, 2018 +John C. McIlwraith +/s/ John M. Rice, Jr. +Director +November 29, 2018 +John M. Rice, Jr. +/s/ Catherine A. Sazdanoff +Director +November 29, 2018 +Catherine A. Sazdanoff +/s/ Felicia Williams +Director +November 29, 2018 +Felicia Williams +- 86 - +Table of Contents +SCHEDULE II +Meridian Bioscience, Inc. +and +Subsidiaries +Valuation and Qualifying Accounts +(Dollars in thousands) +Years Ended +September 30, 2018, 2017 and 2016 +Description +Balance at +Beginning +of Period +Charged to +Costs and +Expenses +Deductions +Other (a) +Balance at +End of +Period +Year Ended September 30, 2018: +Allowance for doubtful accounts +$ +307 +$ +39 +$ +(32 +) +$ +(4 +) +$ +310 +Inventory realizability reserves +2,059 +321 +(405 +) +(4 +) +1,971 +Valuation allowances – deferred taxes +342 +— +(40 +) +— +302 +Year Ended September 30, 2017: +Allowance for doubtful accounts +$ +334 +$ +90 +$ +(134 +) +$ +17 +$ +307 +Inventory realizability reserves +2,680 +35 +(661 +) +5 +2,059 +Valuation allowances – deferred taxes +342 +— +— +— +342 +Year Ended September 30, 2016: +Allowance for doubtful accounts +$ +248 +$ +139 +$ +(69 +) +$ +16 +$ +334 +Inventory realizability reserves +2,456 +1,285 +(1,072 +) +11 +2,680 +Valuation allowances – deferred taxes +15 +327 +— +— +342 +(a) +Balances reflect the effects of currency translation and in 2016, the acquisition of Magellan. +- 87 - \ No newline at end of file diff --git a/raw/filings/0000794172/2018/0001193125-18-337257/filing_metadata.csv b/raw/filings/0000794172/2018/0001193125-18-337257/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..a44c91c79ec765b808d3ceed07d92f312c272e61 --- /dev/null +++ b/raw/filings/0000794172/2018/0001193125-18-337257/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000794172,VIVO,MERIDIAN BIOSCIENCE INC,10-K,2018-11-29,2018-09-30,2018-11-29T13:39:44.000Z,0001193125-18-337257,d621584d10k.htm,FORM 10-K,5940764,1,0,https://www.sec.gov/Archives/edgar/data/794172/000119312518337257/d621584d10k.htm,https://www.sec.gov/Archives/edgar/data/794172/000119312518337257/,2018,2018,1 diff --git a/raw/filings/0000794172/2018/0001193125-18-337257/item1.txt b/raw/filings/0000794172/2018/0001193125-18-337257/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..aad1a7d4b3bc6d450a8df979b2999e8b7c4447d9 --- /dev/null +++ b/raw/filings/0000794172/2018/0001193125-18-337257/item1.txt @@ -0,0 +1,20 @@ +ITEM 1. +BUSINESS +Overview +Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic +test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, competent cells, and +bioresearch reagents used by other diagnostic manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. The Company was incorporated in Ohio in 1976. Our principal corporate offices +are located near Cincinnati, Ohio, USA. +- 5 - +Table of Contents +Our website is www.meridianbioscience.com . We make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and any amendments thereto, free of charge through +this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site containing these filings and other +information regarding Meridian at www.sec.gov . The information on our website is not and should not be considered part of this Annual Report on Form 10-K. +Reportable Segments +Our reportable segments are +Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. Detailed information related to the reportable segments can be found in the following locations within this Annual Report on Form +10-K: +Type of Segment Information +Location within Annual Report on +Form 10-K +Physical locations and activities \ No newline at end of file diff --git a/raw/filings/0000794172/2018/0001193125-18-337257/item13.txt b/raw/filings/0000794172/2018/0001193125-18-337257/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..ab99dca1a9426fead190d8355464bdda181ace5d --- /dev/null +++ b/raw/filings/0000794172/2018/0001193125-18-337257/item13.txt @@ -0,0 +1,3 @@ +Item 13 +Certain Relationships and Related Transactions, and Director Independence +81 \ No newline at end of file diff --git a/raw/filings/0000794172/2018/0001193125-18-337257/item9a.txt b/raw/filings/0000794172/2018/0001193125-18-337257/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..34fbeec2d2dc33ae671cd909e6f4b82b05bfefa5 --- /dev/null +++ b/raw/filings/0000794172/2018/0001193125-18-337257/item9a.txt @@ -0,0 +1,3 @@ +Item 9A +Controls and Procedures +80 \ No newline at end of file diff --git a/raw/filings/0000794172/2018/0001193125-18-337257/rp_note.txt b/raw/filings/0000794172/2018/0001193125-18-337257/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000794172/2018/0001193125-18-337257/rpt_disclosure.txt b/raw/filings/0000794172/2018/0001193125-18-337257/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..c5936b2761b68fd3791caab01b24e4d047cf7e1b --- /dev/null +++ b/raw/filings/0000794172/2018/0001193125-18-337257/rpt_disclosure.txt @@ -0,0 +1,16 @@ +TRANSACTIONS WITH RELATED PERSONS +During fiscal 2018, the Company leased certain office space from an entity controlled by Marco G. Calzavara, who served as President and Managing Director, Meridian Bioscience Europe through July +2018. Payments made under such arrangements during fiscal 2018 totaled approximately $160,000. +Nasdaq rules require the Company to +conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and +that all such transactions must be approved by the Audit Committee or another Committee comprised of independent Directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party +transaction if it determines that it is in the best interests of the Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related +persons” (Directors and Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person transaction that meets the minimum +threshold for disclosure in the proxy statement under +14 +Table of Contents +the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering +the transaction, the Audit Committee may consider all relevant factors, including, as applicable: (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person +transaction; (iii) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or +apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The +approvals of such related person transactions are evidenced by internal Company resolutions, minutes or memoranda. \ No newline at end of file diff --git a/raw/filings/0000794172/2019/0001193125-19-300565/filing.txt b/raw/filings/0000794172/2019/0001193125-19-300565/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..8450a291d4c2fe8d4337888c6831f4cb6bf5786d --- /dev/null +++ b/raw/filings/0000794172/2019/0001193125-19-300565/filing.txt @@ -0,0 +1,4587 @@ +10-K +Yes false 2019 FY MERIDIAN BIOSCIENCE INC 0000794172 09-30 Yes No Yes 0000794172 2018-10-01 2019-09-30 0000794172 2017-10-01 2018-09-30 0000794172 2016-10-01 2017-09-30 0000794172 2019-09-30 0000794172 2018-09-30 0000794172 2018-10-01 2018-12-31 0000794172 2019-01-01 2019-03-31 0000794172 2019-04-01 2019-06-30 0000794172 2019-07-01 2019-09-30 0000794172 2017-10-01 2017-12-31 0000794172 2018-01-01 2018-03-31 0000794172 2018-04-01 2018-06-30 0000794172 2018-07-01 2018-09-30 0000794172 2015-10-01 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+31-0888197 +State of Incorporation +: +Ohio +Phone: ( 513 ) +271-3700 +Securities Registered Pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol +Name of each exchange of which registered +Common Shares , No Par Value +VIVO +The NASDAQ Stock Market LLC +(NASDAQ Global Select 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. YES +☒ +NO +☐ +If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act. YES +☐ +NO +☒ +Table of Contents +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, and (2) has been subject to such filing requirements for the past 90 days. +YES +☒ +NO +☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation +S-T +(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). +YES +☒ +NO +☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a +non-accelerated +filer, a smaller reporting company or emerging growth company. See 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 filer +☐ +Non-accelerated filer +☐ +Smaller reporting company +☐ +Emerging +G +rowth +C +ompany +☐ +Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule +12b-2). +YES +☐ +NO +☒ +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 Act. +☐ +The aggregate market value of Common Shares held by +non-affiliates +as of March 31, 2019 was $ 743,730,984 based on a closing sale price of $17.61 per share on March 31, 2019. As of October 31, 2019, 42,741,721 no par value Common Shares were issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the Proxy Statement for the 2020 Annual Meeting of Shareholders, which will be filed within one hundred and twenty days of the fiscal year ended September 30, 2019 (2020 Proxy Statement), are incorporated by reference into Part III of this report to the extent described herein. +Table of Contents +MERIDIAN BIOSCIENCE, INC. +INDEX TO ANNUAL REPORT +ON FORM +10-K +Page +Part I +Item 1 +Business +4 +Item 1A +Risk Factors +11 +Item 1B +Unresolved Staff Comments +20 +Item 2 +Properties +21 +Item 3 +Legal Proceedings +21 +Item 4 +Mine Safety Disclosures +22 +Part II +Item 5 +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +22 +Item 6 +Selected Financial Data +24 +Item 7 +Management’s Discussion and Analysis of Financial Condition and Results of Operations +24 +Item 7A +Quantitative and Qualitative Disclosures about Market Risk +33 +Item 8 +Financial Statements and Supplementary Data +34 +Item 9 +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +68 +Item 9A +Controls and Procedures +68 +Item 9B +Other Information +68 +Part III +Item 10 +Directors, Executive Officers and Corporate Governance +69 +Item 11 +Executive Compensation +69 +Item 12 +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +69 +Item 13 +Certain Relationships and Related Transactions, and Director Independence +69 +Item 14 +Principal Accountant Fees and Services +69 +Item 15 +Exhibits and Financial Statement Schedules +70 +Item 16 +Form 10-K Summary +72 +NOTE ABOUT FORWARD-LOOKING STATEMENTS +This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business” (Part I, Item 1 of this Form +10-K), +“Risk Factors” (Part I, Item 1A of this Form +10-K), +and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form +10-K). +These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form +10-K) +and elsewhere in this Form +10-K. +Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise. +Table of Contents +PART I. +This Annual Report on Form +10-K +includes forward-looking statements about our business and results of operations that are subject to risks and uncertainties. See “Note About Forward-Looking Statements” above. Factors that could cause or contribute to such risks and uncertainties include those discussed in Item 1A. “Risk Factors.” In addition to the risk factors discussed herein, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these risks and uncertainties develops into actual events, our business, financial condition or results of operations could be adversely affected. +Unless the context requires otherwise, references in this Annual Report on Form +10-K +to “Meridian,” “we,” “us,” “our,” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries. +In the discussion that follows, all dollar amounts and share amounts are in thousands (both tables and text), except per share data. +This Annual Report on Form +10-K +refers to trademarks such as Alethia +™ +, Curian +™ +, Immuno +Card +® +, Immuno +Card +STAT! +® +, LeadCare +® +, MyTaq +™ +, PediaStat +™ +, PREMIER +® +, revogene +™ +and SensiFAST +™ +, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and tradenames referred to in this Form +10-K +may appear without the +® +or +™ +symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames. Our molecular diagnostic test platform formerly known under the tradenames +illumi +gene +and +illumi +pro +, has been rebranded under the tradename Alethia. References to Alethia throughout this Annual Report on Form +10-K +refer to our molecular diagnostic tests and instrumentation formerly marketed and sold under the +illumi +gene +and +illumi +pro +brands. +ITEM 1. +BUSINESS +Overview +Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by IVD manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. The Company was incorporated in Ohio in 1976. Our principal corporate offices are located near Cincinnati, Ohio, USA. +Our website is +www.meridianbioscience.com +. We make available our Annual Reports on Form +10-K, +Quarterly Reports on Form +10-Q, +Current Reports on Form +8-K, +Proxy Statements and any amendments thereto, free of charge through this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site containing these filings and other information regarding Meridian at +www.sec.gov +. The information on our website is not and should not be considered part of this Annual Report on Form +10-K. +Reportable Segments +Our reportable segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. Detailed information related to the reportable segments can be found in the following locations within this Annual Report on Form +10-K: +- 4 - +Table of Contents +Type of Segment Information +Location within Annual Report on Form +10-K +Physical locations and activities +Item 2. “Properties” +Revenue by geographic region +Item 7. “Management’s Discussion and Analysis of Financial Condition & Results of Operations” (hereafter “MD&A”) +Financial information +Note 9 of Consolidated Financial Statements +Diagnostics Segment +Overview of Products and Markets +Our largest source of revenues is clinical diagnostic products, with our Diagnostics segment providing 68% of consolidated net revenues for fiscal 2019. As of September 30, 2019, our Diagnostics segment had approximately 485 employees in ten countries. +Our clinical diagnostic products provide accuracy, simplicity and speed; enable early diagnosis and treatment of common, acute medical conditions; and provide for better patient outcomes at reduced costs. We target diagnostics for disease states that: (i) are conditions where rapid diagnosis impacts patient outcomes; (ii) have opportunistic demographic and disease profiles; (iii) are underserved by current diagnostic products; and/or (iv) have difficult sample handling requirements (e.g., stool). This approach has allowed us to establish meaningful market share in our target disease states, gastrointestinal and respiratory illnesses, and tests for elevated lead levels in blood. +Our clinical diagnostic products span a broad menu of testing platforms and technologies, and also include transport media that store and preserve specimen samples from patient collection to laboratory testing. Our testing platforms include: +• +Real-time PCR Amplification (Revogene brand) +– high-sensitivity, fluorescent molecular platform suitable for automated sample prep and targeted nucleic acid amplification and detection from patient specimens. Assay platform can process +1-8 +tests per run in about one hour. Current menu includes four +FDA-cleared +assays. Simple sample prep, footprint and test turnaround time make the Revogene platform suitable for Integrated Delivery Networks (“IDNs”) and hospital systems using a decentralized testing approach. +• +Isothermal DNA Amplification (Alethia brand) +– high sensitivity, molecular platform using LAMP (loop-mediated isothermal amplification) technology to process from 1 to 10 tests per run in generally under one hour; and requires no batching of samples. Following the June 2019 acquisition of the Revogene brand, efforts are underway to convert existing Alethia customers using +C. difficile, +Group A +Streptococcus +and Group B +Streptococcus +assays to the Revogene platform. +• +Lateral Flow Immunoassay (Curian brand) +– rapid fluorescence-based immunoassay platform highly compatible with detection of infectious agents in human clinical specimens; provides single step sample prep methodology with a rapid +time-to-result +analyzer readout in 20 minutes. The 510(k) application for the Curian instrument and its first assay, a stool antigen test for +H. pylori +, was submitted to FDA in September 2019, and commercial launch of the testing platform is expected in the first half of fiscal 2020. +• +Rapid Immunoassay (Immuno +Card +and Immuno +Card +STAT! brands) +– +single-use +immunoassays that have fast turnaround times (generally under 20 minutes); and can reduce expensive send-outs for hospitals and outpatient clinics. +• +Enzyme-linked Immunoassay (PREMIER brand) +– batch immunoassay platform that can process up to 96 tests per run; is highly accurate and economical; and is adaptable to automation. +• +Anodic Stripping Voltammetry (LeadCare and PediaStat brands) +– electrical chemical sensor platform for quantitative determination of lead levels in blood. +- 5 - +Table of Contents +Our clinical diagnostic products are comprised of products used principally in the detection of infectious diseases caused by various bacteria, viruses, parasites and pathogens, along with the CLIA-waived LeadCare test for quantitative determination of blood lead levels. These products are grouped into the following product families: +Gastrointestinal Assays +Includes tests for the following, among others: +C. difficile +, Enterohemorrhagic +E. coli +, +Campylobacter jejuni +(Campy), +H. pylori, +Cryptosporidium +, giardia lamblia, +and calprotectin +. +Respiratory Illness Assays +Includes tests for the following, among others: Group A +Streptococcus +(strep throat), Influenza, +M. pneumoniae +(Mycoplasma), +Bordetella pertussis +(whooping cough), and respiratory syncytial virus (RSV). +Blood Chemistry Assays +Tests for elevated lead levels in blood. +Other Assays +Includes tests for the following, among others: Group B +Streptococcus +, +Chlamydia trachomatis +, +Neisseria gonorrhea +, Herpes Simplex Virus Type 1 & Type 2, and Malaria. +Our product portfolio includes over 140 diagnostic tests and transport media, and is marketed to acute care hospitals, reference laboratories, outpatient clinics and physician office laboratories in over 70 countries around the world. +Our current research and development pipeline for immunoassay products includes a new instrument that utilizes fluorescent chemistry, which improves workflow and test result readability. As noted above, this new platform is being branded under the “Curian” name. At the end of fiscal 2019, we submitted a 510(k) application to the FDA for an HpSA rapid immunoassay test for use with the Curian instrument, which we are expecting to introduce to the market during the second quarter of fiscal 2020. We expect to develop additional rapid immunoassay tests for use with the Curian instrument in 2020 and beyond. +Our current research and development pipeline for molecular assays to be run on our Revogene platform includes, among others, a gastrointestinal (“GI”) panel and a respiratory illness (“RI”) panel. We expect the 510(k) applications for the GI and RI panels to be submitted to the FDA in the latter part of fiscal 2020 and first half of fiscal 2021, respectively. +Market Trends +The global market for infectious disease tests continues to expand as new disease states are identified, new therapies become available, and worldwide standards of living and access to health care improve. More importantly, within this market, there is a continuing shift from conventional testing, which requires highly trained personnel and lengthy turnaround times for test results, to more technologically advanced testing, which can be performed by less highly trained personnel and completed in minutes or hours. +The growing global pressures to contain total health care costs have accelerated the increased use of diagnostic testing. With rapid and accurate diagnoses of infectious diseases, physicians can pinpoint appropriate therapies quickly, leading to faster recovery, shorter hospital stays and lower overall treatment cost. IDNs in our U.S. market have the goal of increasing the efficiency of health care delivery, reducing spending and improving clinical outcomes. We believe our product portfolio positions us competitively with IDNs and health care systems that are transitioning from +fee-for-service +compensation models to value-based reimbursement. Our +C. difficile +, Group B +Streptococcus +, Group A +Streptococcus +and +H. pylori +products are all examples of how a highly accurate diagnostic test on the front end can mitigate or reduce down-stream costs of antibiotic use, symptom-relieving drugs and hospital stays. +We also continue to see aggregation of buying power in our U.S. market via multi-hospital group purchasing organizations and IDNs, consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and acquisition of physician practices by hospitals, health systems and +for-profit +specialty health care companies. +- 6 - +Table of Contents +Cost containment pressures have also affected health care systems outside the U.S., particularly in Europe, where the health care systems are generally +government-run. +The level of government budget deficits can have an adverse effect on the amount of government health care spend. +Sales, Marketing and Distribution +Our Diagnostics segment’s sales and distribution network consists of the following for each of the broad geographic regions we serve: +Americas +In the Americas, our sales and distribution network consists of a direct sales force complemented by independent distributors. The use of independent distributors allows our products to reach any size health care facility and also provides our customers the option to purchase our products directly from Meridian or through an authorized distributor. Two independent distributors accounted for 10% or more of consolidated revenues in fiscal 2019, 2018 and 2017: Cardinal Health 200 LLC (“Cardinal”) and Fisher Scientific LLC (“Fisher”). Our Diagnostics segment revenues from Cardinal were approximately $18,000, $21,000 and $22,000 during fiscal 2019, 2018 and 2017, respectively. Our Diagnostics segment revenues from Fisher were approximately $17,000, $22,000 and $18,000 during fiscal 2019, 2018 and 2017, respectively. +EMEA +In Europe, the Middle East and Africa (“EMEA”), our sales and distribution network consists of direct sales personnel in Belgium, France and Italy, and independent distributors in other European countries, Africa and the Middle East. We maintain a distribution center near Milan, Italy. +ROW +We generally utilize independent distributors throughout the rest of the world (“ROW”). +Competition +Our major competitors in molecular diagnostics are Cepheid (a Danaher business) and Becton Dickinson, both of which have systems with multiple-assay menus. We also face competition in molecular diagnostics, but to a lesser degree, from companies such as Abbott (former Alere business) and Quidel. +Our major competitors in rapid immunoassay diagnostics are primarily Abbott (former Alere business) and Quidel. In recent years, companies such as bioMerieux have captured market share in our gastrointestinal category via its BioFire multi-plex panel tests. However, since their introduction to the market, payors have raised concerns over reimbursement levels relative to clinical utility, particularly for panels with 12 or more targets. For blood lead testing, we believe we have the only +FDA-cleared, +CLIA-waived +point-of-care +test available commercially. Other blood lead testing systems in use, marketed by our competitors, include Graphite Furnace Atomic Absorption Spectroscopy, which requires a highly-skilled technician and larger laboratory space to operate, in addition to not being portable or suitable for +point-of-care +use. We believe that with the breadth and depth of our product portfolio, we are well positioned for the clinical laboratory. +Research and Development +Our Diagnostics segment’s research and development personnel are organized into three +pre-clinical +teams: immunoassay, +PCR-based +molecular and blood-chemistry. We have a separate team responsible for execution of clinical trials. Our research and development activities are focused on new product and new technology development, new applications for our existing technologies, and improvements to existing products, including assay-menu expansion across our Curian, Revogene and PediaStat instrument platforms. Research and development efforts may occur +in-house +or with collaborative partners. We believe that new product development is a key source for sustaining revenue growth. The products within our Revogene and Alethia molecular platforms, +H. pylori +product family and blood lead testing family were developed solely +in-house, +or substantially so. See “Operating Expenses” section within MD&A on page 28. +- 7 - +Table of Contents +Manufacturing +Our immunoassay and molecular assay products require the production of highly specialized reagents, primers and enzymes. We produce the vast majority of our own immunoassay requirements. Reagents, primers and enzymes for our Revogene molecular assay products, as well as primers for our Alethia molecular assay products, are purchased from outside vendors. Our blood lead testing products require the production of electrical chemical sensors, which we manufacture using critical raw materials purchased from outside vendors. We believe that we have sufficient manufacturing and sourcing capacity for anticipated growth over the next several years, taking into consideration that we have the ability to add labor shifts and/or production lines as needed. +Intellectual Property, Patents and Licenses +We own or license U.S. and foreign patents, most of which are for select products manufactured by our Diagnostics segment. These patents are used in our manufacturing processes for select products (e.g., method patents) or may relate to the design of the test device technology format (e.g., design patents). In the absence of patent protection, we may be vulnerable to competitors who successfully replicate our production and manufacturing technologies and processes. Our employees are required to sign confidentiality and +non-disclosure +agreements designed to protect our proprietary products. +The patents for our Alethia products, which represented 13%, 16% and 17% of consolidated revenues for fiscal 2019, 2018 and 2017, respectively, are licensed from a third party, Eiken Chemical Co., Ltd., under a +non-exclusive +license agreement and expire between 2020 and 2022. These patents were issued in the U.S., European Union and other countries. The term of our license agreement runs until the last patent expires in 2022, at which point we will be free to practice the patents without any restriction or royalty obligation. +The patents for the Revogene platform and related products acquired as part of the GenePOC business are either wholly owned or licensed from a third party, Laval University and The Regents of California, under an exclusive license agreement. These patents are issued in the U.S., European Union and other countries. The term of our license agreement runs until 2036, after which we will be free to practice the patents without any restriction or royalty obligation. For a description of our acquisition of the GenePOC business, see Note 2 of the accompanying Consolidated Financial Statements. +The patents for our +H. pylori +products, owned by us and which represented approximately 16%, 16% and 15% of consolidated revenues for fiscal 2019, 2018 and 2017, respectively, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our +H. pylori +products to continue to increase, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We have executed on a number of measures to address competitive pressures in coming off patent. In October 2018, we entered into a strategic collaboration with DiaSorin to sell +H. pylori +tests, one of only three other companies that market +FDA-cleared +tests to detect +H. pylori +antigen in stool samples in the U.S. market. We have executed multi-year supply agreements with our two largest reference laboratory customers for +H. pylori +tests to secure volume, albeit at lower selling prices. In the first half of fiscal 2020, we expect to launch Curian HpSA, our first assay on the new Curian platform, for which the 510(k) application was submitted to the FDA in September 2019. We expect that this product will help us protect existing rapid assay accounts using the advantages of the Curian analyzer. However, we are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +Government Regulation +Our diagnostic products are regulated by the FDA as “devices” pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). Class I and II devices are not expressly approved by the FDA, but, instead, are “cleared” for marketing. Class III devices generally must receive +“pre-market +approval” from the FDA as to safety and effectiveness. Our diagnostics manufacturing facilities in Cincinnati and Billerica are subject to periodic inspection by the FDA. See page 25 within MD&A for discussion regarding the FDA’s inspection of our Billerica facility. +- 8 - +Table of Contents +Each of the diagnostic products currently marketed by us in the United States has been cleared by the FDA pursuant to the 510(k) clearance process or is exempt from such requirements. We believe that most, but not all, products under development will be classified as Class I or II medical devices and, in the case of most of our Class I and all Class II devices, will be eligible for 510(k) clearance; however, we can make no assurances in this regard. +Sales of our diagnostic products in foreign countries are subject to foreign government regulation, which is similar to that of the FDA. +Our Diagnostics facilities are certified to ISO 13485:2016. +Seasonal Factors and Sporadic Outbreaks +Our principal business is the sale of a broad range of clinical diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak. While we believe that the breadth of our diagnostic product lines reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in diagnostic revenues, we can make no assurance that revenues will not be impacted period over period by such factors. +Life Science Segment +Overview of Products and Markets +Our Life Science segment focuses on the development, manufacture, sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by researchers, +agri-bio +companies and IVD manufacturing companies. As of September 30, 2019, our Life Science segment had approximately 175 employees in six countries. +Most of the revenues for our Life Science segment currently come from the manufacture, sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by IVD manufacturing companies focused on the development of immunoassay and molecular assay tests. Approximately 80% of Life Science revenues are generated from the industrial market, defined as IVD manufacturers. This continues to be an increasing focus for our molecular reagent products, which historically have been marketed to the academic/research customers that comprise the remaining 20% of Life Science revenues. We utilize direct sales teams in key countries such as the U.S., the U.K., France, Germany, and Australia. In order to further pursue revenue opportunities in Asia, and China in particular, during fiscal 2017 we established a wholly foreign owned enterprise (“WFOE”) location in Beijing, China, after having operated a representative office there since fiscal 2015. The WFOE employs a business development staff and imports product for sale to customers in China. We utilize a network of distributors in other major countries. During fiscal 2019, 24% of third-party revenues for this segment were from two IVD manufacturing customers. +Our Life Science products are marketed to IVD manufacturing customers as a source of raw materials for their immunoassay products, or as an outsourced step in their manufacturing processes. For example, we supply a number of major IVD manufacturers with proteins used to detect hepatitis A virus and rubella virus. Sales efforts are focused on multi-year supply arrangements in order to provide stability in volumes and pricing. We believe this benefits both us and our customers. +We utilize independent distributors to market molecular biology products to academic/research customers. These products are used in measuring DNA and RNA in human, animal, plant and environmental applications. These reagents improve the purity, yield and speed of PCR reactions. Products such as MyTaq and SensiFAST are examples of this type of PCR/qPCR reagent. +Market Trends +As certain global markets become increasingly accessible to us, most notably the Asia-Pacific region, geographic expansion continues to be a significant strategy for our Life Science segment, along with further penetration into industrial markets with our molecular biology products. +- 9 - +Table of Contents +Competition +The market for bulk biomedical reagents is highly competitive. Important competitive factors include product quality, price, customer service and reputation. We face competitors, many of which have greater financial, research and development, sales and marketing, and manufacturing resources, and where sole-source supply arrangements do not exist. Customers also may choose to manufacture their biomedical reagents +in-house +rather than purchase from outside vendors such as Meridian. +The academic/research market is highly fragmented. Individual purchases are typically of small quantities. The breadth of product offerings, quality, price and service, including +on-line +capabilities and technical resources, are important factors to building customer loyalty and repeat purchases. +Research and Development +The focus of research and development activities for the Life Science segment is targeted around improving reagents, particularly molecular reagents. For example, our Life Science segment introduced a family of lyophilization-ready reagents that have a number of advantages over prior generation “wet” reagents (e.g., room-temperature shipping and storage and longer shelf-life). See “Operating Expenses” section within MD&A on page 28. +Manufacturing and Government Regulation +Our Life Science facilities are ISO 13485:2016 certified. Additionally, where appropriate, our Life Science facilities comply with Regulation EC 1069:2009. +Acquisitions +Acquisitions have played an important role in the growth of our businesses. Our acquisition objectives include, among other things: (i) enhancing product offerings; (ii) improving product distribution capabilities; (iii) providing access to new markets; and/or (iv) providing access to key biologicals or new technologies that lead to new products. Although we cannot provide assurance that we will consummate additional acquisitions in the future, nor can we provide assurance that any acquisitions will accomplish these objectives, we expect that the potential for acquisitions will continue to provide opportunities for revenue and earnings growth in the future. +During June 2019, we acquired the business of GenePOC Inc. (“GenePOC”). A description of the GenePOC acquisition appears in Note 2 of the accompanying Consolidated Financial Statements. +International Markets +International markets are an important source of revenues and future growth opportunities for both of our segments. For both segments combined, revenues from customers located outside of the United States approximated $76,000 or 38% of consolidated fiscal 2019 revenues, $73,000 or 34% of consolidated fiscal 2018 revenues, and $67,000 or 33% of consolidated fiscal 2017 revenues. We expect to continue to look to key European markets as a source of revenue growth in the future for both business units. For the Life Science segment, we have also focused resources on IVD manufacturing customers in China. To date, we have not experienced any adverse effects from the trade tensions between the United States and China, but we cannot be sure that we will not experience any adverse effects in the future. +Fluctuations in foreign currency exchange rates since fiscal 2018 had an approximate $2,200 unfavorable impact on fiscal 2019 revenues; $1,150 within the Diagnostics segment and $1,050 within the Life Science segment. This compares to +year-to-year +currency exchange rates having an approximate $2,200 favorable impact on revenues in fiscal 2018; $1,400 within the Diagnostics segment and $800 within the Life Science segment. Due to natural hedge relationships with expenses, both cost of sales and operating expenses, the overall impact of exchange rate fluctuations on operating income was not significant during fiscal 2019, 2018 and 2017. +Environmental +We are in compliance with applicable portions of the federal and state hazardous waste regulations and have never been a party to any environmental proceeding. +- 10 - +Table of Contents +ITEM 1A. +RISK FACTORS +In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition, cash flows or future results. Any one of these factors could cause our actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition and/or operating results. +Risks Affecting Growth and Profitability of our Business +We may be unable to develop new products and services or acquire products and services on favorable terms. +The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and services that incorporate technological advances, meet customer requirements and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations. +In addition, we must regularly allocate considerable resources to research and development of new or acquired products, services and technologies, and protecting intellectual property. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a product in which we have invested substantial resources, any of which could adversely affect our results of operations. +We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make. +One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional operating costs, disrupted operations, challenges in employee retention, and increased risk of asset impairments if future revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s earnings and financial results. +Revenues for our Diagnostics segment may be impacted by our reliance upon two key distributors in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions. +Key Distributors +Our Diagnostics segment’s revenues from sales through two U.S. distributors were approximately 26% and 29% of the Diagnostics segment’s total revenues for fiscal 2019 and fiscal 2018, respectively, or approximately 18% and 20%, respectively, of each fiscal year’s consolidated revenues. These parties distribute our products and other laboratory products to +end-user +customers. The loss of either of these distributors could negatively impact our revenues and results of operations unless suitable alternatives were timely found or lost sales to one distributor were absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future selling, general and administrative expenses. +- 11 - +Table of Contents +In addition, buying patterns of these two distributors may fluctuate from quarter to quarter, potentially leading to uneven concentration levels on a quarterly basis. +Seasonal Factors and Sporadic Outbreaks +Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak. While we believe that the breadth of our diagnostic product lines reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in diagnostic revenues, we can make no assurance that revenues will not be negatively impacted period over period by such factors. +Changing Diagnostic Market Conditions +Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of group purchasing organizations (“GPOs”) and IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and/or IDNs, which could adversely affect our results of operations. +We could be adversely affected by health care reform legislation. +Third-party payers for medical products and services, including state, federal and foreign governments, are increasingly concerned about escalating health care costs and can indirectly affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement they will provide for diagnostic testing services. Following years of increasing pressure, during 2010 the U.S. government enacted comprehensive health care reform with the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, which made changes that significantly impact the pharmaceutical and medical device industries. The Protecting Access to Medicare Act of 2014 requires applicable laboratories to report all private payor reimbursement rates and the volumes for each test they perform. The statute requires that Medicare establish reimbursement rates based on the weighted median of private insurance reimbursement rates effective January 1, 2017. The new Medicare rates would be subject to a maximum reduction of 10% a year for the initial three year period and a maximum of 15% a year for the subsequent three year period. There is no limit on the amount of potential rate increases. As a result, some of our customers in the United States may experience lower Medicare reimbursement rates for our products, which may adversely affect our business, financial condition and results of operations. We are seeing some effect on the reimbursement rates for our products. If reimbursement amounts for diagnostic testing services decrease further in the future, such decreases may reduce the amount that will be reimbursed to hospitals or physicians for such services and consequently, could place constraints on the levels of overall pricing, which could have a material effect on our revenues and/or results of operations. +The Patient Protection and Affordable Care Act includes a medical device excise tax for which a moratorium has been in place. However, this moratorium is scheduled to expire December 31, 2019. Our Diagnostics segment’s products are generally subject to this tax. We are unable to predict if Congress will extend the current moratorium or altogether repeal the tax. Without Congressional legislative action, the medical device excise tax will return effective January 1, 2020. +Additional state and federal health care reform measures may be adopted in the future, any of which could have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the United States government has in the past considered, is currently considering, and may in the future consider, health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public reimbursement for health care services. Further, state and local governments, as well as a number of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the United States or elsewhere, and current uncertainty about whether and how changes may be implemented, could have a negative impact on the demand for our products. We are unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what effect such policies would have on our business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers. +- 12 - +Table of Contents +Efforts to reduce the U.S. federal deficit could adversely affect our results of operations. +As part of the Budget Control Act passed in August 2011 to extend the federal debt limit and reduce government spending, $1.2 trillion in automatic spending cuts (known as sequestration) were implemented in 2013. The sequestration requires a 2% cut in Medicare payments for all services, including our diagnostic tests, which, due to subsequent legislative amendments to the statute, will remain in effect through 2024 unless Congressional action is otherwise taken. Government research funding has also been reduced as a result of the sequestration. On January 2, 2013, the American Taxpayer Relief Act of 2012 also was signed into law, which, among other things, further reduces Medicare payments to providers such as hospitals, imaging centers and cancer treatment centers, and increases the statute of limitations period for the government to recover overpayments to providers from three to five years. +Such reductions in government health care spending or research funding could result in reduced demand for our products or additional pricing pressure. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S. government default on its debt could have broad macroeconomic effects that could, among other things, raise our borrowing costs. Any future shutdown of the federal government or failure to enact annual appropriations could also have a material adverse impact on our business. +Revenues for our Life Science segment may be impacted by customer concentrations and buying patterns. +Our Life Science segment’s revenues from two diagnostic manufacturing customers were 24% and 18% of the Life Science segment’s total revenues for fiscal 2019 and fiscal 2018, respectively; and 8% and 5% of our consolidated revenues for fiscal 2019 and fiscal 2018, respectively. Our Life Science segment has five other significant customers, which together comprised 11% of the segment’s total revenues for each of fiscal 2019 and fiscal 2018. Any significant alteration of buying patterns from these customers could adversely affect our period over period revenues and results of operations. +Intense competition could adversely affect our profitability. +The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small +start-up +companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors. +We expect to face increased competition resulting from expiration of our H. pylori patents. +The patents for our +H. pylori +products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our +H. pylori +products, high margin products which represent approximately 16% of our total revenues, to continue to increase, as we currently are one of only four companies that market +FDA-cleared +tests to detect +H. pylori +antigen in stool samples in the U.S. market, one of which is DiaSorin Inc., with whom we have entered a strategic collaboration agreement to sell +H. pylori +tests. At present, we are also aware of at least one other company that has commenced clinical trials of +H. pylori +products in the U.S. Such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We have executed on a number of measures to address competitive pressures in coming off patent. We have executed multi-year supply agreements with our two largest reference laboratory customers for +H. pylori +tests to secure volume, albeit at lower selling prices. In the first half of fiscal 2020, we expect to launch Curian HpSA, our first assay on the new Curian platform for which the 510(k) was submitted to the FDA in September 2019. We expect that this product will help us protect existing rapid assay accounts using the advantages of the Curian analyzer. However, we are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +- 13 - +Table of Contents +We depend on international revenues, and our financial results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets. +We sell products and services into approximately 70 countries. For fiscal 2019, approximately 20% of our consolidated revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates for the Australian dollar, British pound, Canadian dollar, Chinese yuan and Euro. We are also subject to other risks associated with international operations, including longer customer payment cycles, trade wars, increased tariffs, requirements for export licenses, instability of foreign governments, and governmental requirements with respect to the importation and distribution of medical devices and immunodiagnostic and molecular biology reagents, all of which may vary by country. +New tariffs and other trade measures could adversely affect our financial results. +The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include countries from which we import components or raw materials. We are currently not aware of any new import duties imposed on our products. Any such new import duties or restrictions could have a material adverse effect on our business, results of operations or financial condition. Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. +Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental actions related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, manufacturers, suppliers and/or the economic environments in which we operate and, thus may adversely impact our businesses. In addition, there may be changes to existing trade agreements, like the North American Free Trade Agreement (“NAFTA”) and its anticipated successor agreement, the U.S.-Mexico-Canada Agreement (“USMCA”), which is still subject to approval by the United States, Mexico and Canada, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the United States, particularly tariffs on products manufactured in Mexico, among other possible changes. It remains unclear what the U.S. administration or foreign governments will or will not do with respect to tariffs, NAFTA, USMCA or other international trade agreements and policies. Any changes to NAFTA (or subsequent trade agreements) could impact our operations in countries where we manufacture or sell products or source components, or materials, which could adversely affect our operating results and our business. +Risks Affecting our Manufacturing Operations +We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations. +Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or approvals, or timely clearances or approvals, to market future products in the United States and other countries. Costs and difficulties in complying with laws and regulations administered by the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control, or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing products. +Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and costs of approvals difficult to predict. Failure to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to manufacture or sell products, and other civil or criminal sanctions. +- 14 - +Table of Contents +If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted. +Our diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products. The FDA may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the facility’s written response and may +re-inspect +to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. +FDA enforcement actions, which include seizure, injunction, criminal prosecution, and civil penalties, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, sales and profitability. +We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product, or any of its components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our business, financial condition and results of operations. +On June 29, 2017, the FDA, in connection with its Safety Notification related to Magellan (whom we acquired in March 2016) and its lead testing systems for venous blood samples, issued its Form 483, Inspectional Observations, to Magellan. This was followed by the FDA issuing a Warning Letter related to the matter on October 23, 2017. During October 2019, the FDA conducted a +follow-up +inspection of Magellan’s manufacturing facility. In connection with this +follow-up +inspection, the FDA issued five Form 483 observations. In November 2019, we submitted to the FDA our written responses to the five Form 483 observations and have implemented a remediation plan that we are actively working. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA. +Additionally, as set forth in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we are cooperating with the DOJ in this matter. We maintain rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements, and are working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. We have executed tolling agreements to extend the statute of limitations. We cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on Meridian. +See a more detailed discussion of these matters within MD&A on page 25. +- 15 - +Table of Contents +Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results. +Products and services manufactured at facilities we own or lease comprised a majority of our revenues. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities could materially and adversely affect our operating results. +We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business. +Raw Materials and Components +Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components in +FDA-cleared +products. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained. +We utilize third-party manufacturers for certain of our instrumentation. One third party manufactures our proprietary Alethia Incubator/Reader (instrument), a component of our Alethia molecular system, and upon its commercialization during the first half of fiscal 2020, an additional third party will manufacture our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the United States. If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instruments could have a material adverse effect on our operating results. +Additionally, one third party manufactures a certain reagent for use with our Alethia assays. While alternative suppliers exist, we elect to utilize this third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our operating results. +Finished Products +We outsource the manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturing +in-house. +Four products manufactured exclusively for us by two separate and independent companies accounted for 11% of consolidated revenues in each of fiscal 2019, 2018 and 2017. Meridian owns all rights and title to the FDA 510(k) clearances for these products. +Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining adequate inventory levels, supplier qualification procedures, supplier audits, site visits, and frequent communication. Additionally, we have identified potential alternate suppliers. +- 16 - +Table of Contents +Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity. +To manage our anticipated future growth effectively, it may become necessary for us to enhance our manufacturing and supply chain capabilities, infrastructure and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth and +scale-up +of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our revenue could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on our future financial results and condition. +Risks Related to Intellectual Property and Product Liability +We may be unable to protect or obtain proprietary rights that we utilize or intend to utilize. +In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses or proprietary or patented technologies in the future. +See Item 3. “Legal Proceedings” for a discussion of the status of certain litigation related to our intellectual property. +Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products. +Litigation over intellectual property rights is prevalent in the diagnostic industry. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business. +If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products. +The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We currently carry product liability insurance at a level we believe is commercially reasonable, although there is no assurance that it will be adequate to cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related to our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business. +- 17 - +Table of Contents +Other Risks Affecting Our Business +We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, and failure to comply with these laws could harm our business and the price of our common stock. +As a public company listed in the United States, we incur significant legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board (PCAOB) and the NASDAQ Global Select Market, may increase our legal and financial compliance costs and/or make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us and our business may be harmed. +Our business could be negatively affected if we are unable to attract, hire and retain key personnel. +Our future success depends on our continued ability to attract, hire and retain highly qualified personnel, including our executive officers and scientific, technical, sales and marketing employees, and their ability to manage growth successfully. If such key employees were to leave and we were unable to obtain adequate replacements, our operating results could be adversely affected. +Our bank credit agreement imposes restrictions with respect to our operations. +Our bank credit agreement contains a number of financial covenants that require us to meet certain financial ratios and tests. If we fail to comply with the obligations in the credit agreement, we would be in default under the credit agreement. If an event of default is not cured or waived, it could result in acceleration of any indebtedness under our credit agreement, which could have a material adverse effect on our business. At September 30, 2019, we had $75,824 outstanding on a $125,000 bank revolving credit facility. +We face risks related to global economic conditions. +We currently generate significant operating cash flows, which combined with access to the credit markets, provides us with discretionary funding capacity for research and development and other strategic activities. However, as an enterprise with global operations and markets, our operations and financial performance are in part dependent upon global economic conditions, and we could be negatively impacted by a global, regional or national economic crisis, including sovereign risk in the event of deterioration in the credit worthiness of or a default by local governments. We are particularly susceptible to the economic conditions in countries where government-sponsored health care systems are the primary payers for health care, including those countries within the European Union that are reducing their public expenditures in an effort to achieve cost savings. The uncertainty in global economic conditions poses a risk to the overall economy that could impact demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. As such, if global economic conditions deteriorate significantly, our business could be negatively impacted, including such areas as reduced demand for our products from a slow-down in the general economy, supplier or customer disruptions resulting from tighter credit markets, and/or temporary interruptions in our ability to conduct +day-to-day +transactions through our financial intermediaries involving the payment to or collection of funds from our customers, vendors and suppliers. While +to-date +such factors have not had a significant negative impact on our results or operations, we continue to monitor and plan for the potential impact of these global economic factors. +In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The U.K. is currently negotiating the terms of its exit from the European Union (“Brexit”). In November 2018, the U.K. and the European Union agreed upon a draft Withdrawal Agreement that sets out the terms of the U.K.’s departure, including commitments on citizen rights after Brexit, a financial settlement from the U.K., and a transition period to allow time for a future trade deal to be agreed. The U.K. Parliament has not approved the Withdrawal Agreement. As such, the date and the terms of the U.K.’s withdrawal from the European Union remain highly uncertain. +- 18 - +Table of Contents +Any impact of Brexit depends on the terms of the U.K.’s withdrawal from the European Union, if it ultimately occurs. The ongoing uncertainty on the status of the final Withdrawal Agreement could lead to economic stagnation until an ultimate resolution with respect to Brexit occurs. If the U.K. leaves the European Union with no agreement, it will likely have an adverse impact on labor and trade in addition to creating further short-term uncertainty and currency volatility. In the absence of a future trade deal, the U.K.’s trade with the European Union and the rest of the world would be subject to tariffs and duties set by the World Trade Organization. Additionally, the movement of goods and personnel between the U.K. and the remaining member states of the European Union will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. Even if an agreement setting forth the terms of the U.K.’s withdrawal from the European Union is approved, the withdrawal could result in significant changes to the trading relationship between the U.K. and the European Union. These changes to the trading relationship between the U.K and the European Union would likely result in increased cost of goods imported into and exported from the U.K., and may decrease the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period. With a range of outcomes still possible, the impact from Brexit remains uncertain and will depend, in part, on the final outcome of tariff, trade, regulatory and other negotiations. +One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation. +Our operations involve the use of multiple systems that process, store and transmit sensitive information about our customers, suppliers, employees, financial position, operating results and strategies. We face global cybersecurity risks and threats on a continual and ongoing basis, which include, but are not limited to, attempts to access systems and information, computer viruses, or +denial-of-service +attacks. These risks and threats range from uncoordinated individual attempts to sophisticated and targeted measures. While we are not aware of any material cyber-attacks or breaches of our systems to date, we have and continue to implement measures to safeguard our systems and information and mitigate potential risks, including employee training around phishing, malware and other cyber risks, but there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems, compromise sensitive information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events, including breaches of our security measures or those of our third-party service providers, could negatively impact our reputation and our competitive position and could result in litigation with third parties, regulatory action, loss of business due to disruption of operations and/or reputational damage, potential liability and increased remediation and protection costs, any of which could have a material adverse effect on our financial condition and results of operations. Additionally, as cybersecurity risks become more sophisticated, we may need to increase our investments in security measures which could have a material adverse effect on our financial condition and results of operations. +Natural disasters, war and other events could adversely affect our future revenues and operating income. +Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the United States and other governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the United States and in areas outside of the United States in which we operate. These events could result in decreased demand for our products, adversely affect our manufacturing and distribution capabilities, or increase the costs for, or cause interruptions in, the supply of materials from our suppliers. +Risks Related to Our Common Stock +Material weaknesses in our internal control over financial reporting could be identified, which if not properly corrected, could materially adversely affect our operations and result in material misstatements in our financial statements. +During fiscal 2017, the Company identified a material weakness in internal control over financial reporting, which has been remediated. However, the Company can make no assurances that a material weakness will not be identified in the future or that, if identified, it will be properly corrected. In the event we are unable to remediate a material weakness identified in the future, we may be unable to provide holders of our securities with required financial information in a timely and reliable manner, and we may incorrectly report financial information. Either of these events could have a material adverse effect on our operations, investor, supplier and customer confidence in our reported financial information, and/or the trading price of our common stock. +- 19 - +Table of Contents +The authority of our board to issue preferred stock may discourage takeover bids. +Our board of directors has the authority to issue up to 1,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of such shares without any future vote or action by the shareholders. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company that have not been negotiated with the board of directors. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, sales of substantial amounts of shares in the public market could adversely affect the market price of our common stock and our ability to raise additional capital at a price favorable to us. +The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation. +The market price of our common stock may be subject to significant fluctuations due to numerous factors, including but not limited to the risks described in this “Risk Factors” section. In addition, the stock market in general, the NASDAQ Global Market and the market for diagnostics companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our financial condition and results of operations. +Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest. +In recent years, proxy contests and other forms of stockholder activism have been directed against numerous public companies. If a proxy contest or an unsolicited takeover proposal is made with respect to us, we could incur significant costs in defending our company, which would have an adverse effect on our financial results. Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of our company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. +There can be no assurance that we will resume the payment of dividends. +The declaration, amount and timing of the Company’s dividends are subject to capital availability and determinations by our board of directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws, including the applicable provisions of Ohio law, and our agreements applicable to the declaration and payment of cash dividends. We suspended the payment of quarterly cash dividends effective during the fiscal 2019 second quarter. Any action to resume the payment of dividends will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, results of operations, financial condition and other factors beyond our control that our board of directors may deem relevant. Ongoing suspension of our dividend payments could have a negative effect on our stock price. +Changes in the method of determining London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt. +Amounts drawn under our credit facility may bear interest rates in relation to LIBOR, depending on our selection of repayment options. On July 27, 2017, the Financial Conduct Authority (“FCA”) in the U.K. announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Broad Treasury Financing Rate, calculated with a broad set of short-term repurchase agreements backed by treasury securities. If LIBOR ceases to exist, we may need to renegotiate the credit facility and may not be able to do so with terms that are favorable to us. The overall financial market may be disrupted as a result of the +phase-out +or replacement of LIBOR. Disruption in the financial market or the inability to renegotiate the credit facility with favorable terms could have a material adverse effect on our business, financial position, and operating results. +ITEM 1B. +UNRESOLVED STAFF COMMENTS +None. +- 20 - +Table of Contents +ITEM 2. +PROPERTIES +Our corporate offices, infectious disease Diagnostics manufacturing facility, and infectious disease Diagnostics research and development facility are located in four buildings totaling approximately 117,000 square feet on approximately seven acres of land in the Village of Newtown, a suburb of Cincinnati, Ohio. These properties are owned by us. Our blood-chemistry manufacturing and research and development operations are located in an approximately 30,000 square foot leased facility in Billerica, Massachusetts, and our +PCR-based +molecular manufacturing and research and development operations are located in an approximately 24,000 square foot leased facility in Quebec City, Canada. We also operate a Diagnostics sales and distribution center near Milan, Italy in an approximately 18,000 square foot building. This facility is owned by our wholly-owned Italian subsidiary, Meridian Bioscience Europe s.r.l. We also rent office space in Paris, France and +Braine-l’Alleud, +Belgium for sales and administrative functions. +Our Life Science operations are conducted in several facilities in Memphis, Tennessee; Boca Raton, Florida; London, England; Luckenwalde, Germany; Sydney, Australia; and Beijing, China. Our facility in Memphis, Tennessee consists of two buildings totaling approximately 44,000 square feet and is owned by us. Our leased facility in Boca Raton, Florida contains approximately 7,500 square feet of manufacturing space. Following are details of our other Life Science facilities, all of which are leased: London – approximately 19,500 square feet of sales, warehouse, distribution, research and development, manufacturing and administrative office space; Luckenwalde – approximately 10,500 square feet of sales, warehouse and manufacturing space; Sydney – approximately 5,000 square feet of sales and warehouse space; Beijing – less than 1,000 square feet of sales and business development space. +ITEM 3. +LEGAL PROCEEDINGS +We are a party to various litigation matters that we believe are in the normal course of business. Aside from the matters discussed below, the ultimate resolution of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows, and no material provision has been made in the accompanying Consolidated Financial Statements for these matters. +On November 15, 2017, Barbara Forman filed a class action complaint in the United States District Court for the Southern District of Ohio (the Court) naming Meridian, its former Chief Executive Officer and former Chief Financial Officer (in their capacities as such) as defendants. An amended complaint was filed on April 16, 2018 and the Company believes the essential elements of the amended complaint are the same. On July 9, 2019, a settlement was reached with the plaintiff that provides for a $2.1 million payment by the Company. On October 9, 2019, the Court granted a motion for preliminary approval of the settlement, and on November 7, 2019, the settlement amount was paid from the Company’s Directors and Officers insurance policy into a plaintiff escrow account. The Court has scheduled a final approval hearing for March 2020. Because the settlement was a covered claim under our Directors and Officers insurance policy, no provision for litigation losses has been included within the accompanying Consolidated Statements of Operations for fiscal 2019, 2018 or 2017. +On December 6, 2017, Michael Edelson filed a derivative complaint in the United States District Court for the Southern District of Ohio naming Meridian, its former Chief Executive Officer, former Chief Financial Officer and certain members of Meridian’s Board of Directors and Audit Committee (in their capacities as such) as defendants. The complaint alleges that Meridian made false and misleading representations concerning certain of Magellan’s lead test systems at or around the time of Meridian’s acquisition of Magellan and subsequent thereto, and the complaint alleges that certain members of the Board of Directors and Audit Committee breached their fiduciary duties in their oversight of the Company’s public disclosures and corporate governance matters. The complaint sought compensatory damages, equitable relief relating to corporate governance matters and attorneys’ fees. On October 9, 2019, Court granted plaintiff’s motion for voluntary dismissal. Accordingly, no provision for litigation losses has been included within the accompanying Consolidated Statements of Operations for fiscal 2019, 2018 or 2017. +- 21 - +Table of Contents +Approximately $30 and $600 of expense for attorneys’ fees related to the above two class action matters is included within the accompanying Consolidated Statements of Operations for fiscal 2019 and 2018, respectively. Amounts expensed in fiscal 2018 included a $500 deductible under our Directors and Officers insurance policy. +On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements, and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. The Company has executed tolling agreements to extend the statute of limitations. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $1,585 and $775 of expense for attorneys’ fees related to this matter is included within the accompanying Consolidated Statements of Operations for fiscal 2019 and 2018, respectively. +On October 9, 2018, the Company and DiaSorin Inc. entered into a strategic collaboration to sell DiaSorin’s +Helicobacter pylori +stool antigen test to detect +H. pylori +for use on its automated LIAISON platform under the Meridian brand name worldwide. The new collaboration resulted in the termination of all pending legal disputes between the two parties and will expand the previous agreement between DiaSorin and Meridian, which focused on the sale, by DiaSorin, of +co-developed +products in major countries in continental Europe. Approximately $50, $2,965 and $630 of expense for attorneys’ fees related to this matter is included within the accompanying Consolidated Statements of Operations for fiscal 2019, 2018 and 2017, respectively. +ITEM 4. +MINE SAFETY DISCLOSURES +Not applicable. +PART II. +ITEM 5. +MARKET FOR REGISTRANT’S COMMON +EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Refer to “Note About Forward-Looking Statements” following the Index in front of this Form +10-K +and Item 1A “Risk Factors” on pages 11 through 20 of this Annual Report. +Market Information +Our common stock trades on the NASDAQ Global Select Market under the symbol VIVO. +Holders of our Common Stock +As of September 30, 2019, there were approximately 600 holders of record and approximately 10,550 beneficial owners of our common shares. +Dividends +“Quarterly Financial Data (Unaudited)” relating to our dividends in Note 11 of the Consolidated Financial Statements are incorporated herein by reference. +Effective during the second quarter of fiscal 2019, the Company suspended the payment of its quarterly cash dividend, which had previously been established at an indicated annual cash dividend rate of $0.50 per share for each of fiscal 2019, 2018 and 2017. The dividend was suspended as part of the Company’s regular evaluation of its capital allocation, with the action taken in order to deploy cash into new product development activities for the Revogene molecular diagnostic platform, as well as the Curian and PediaStat platforms, among other investments, and to preserve capital resources and liquidity for general corporate purposes. The declaration and amount of +- 22 - +Table of Contents +dividends will be determined by the board of directors in its discretion based upon its evaluation of earnings, cash flow requirements and future business developments and opportunities, including acquisitions. We paid dividends of $0.25, $0.50 and $0.575 per share in fiscal 2019, 2018 and 2017, respectively. +Stock Total Return Performance +The graph below matches the cumulative +5-Year +total return of holders of Meridian Bioscience, Inc.’s common stock with the cumulative total returns of the NASDAQ Composite index and a customized peer group of eight companies that includes: +Bio-Rad +Laboratories, Inc., bioMerieux S.A., GenMark Diagnostics, Inc., Luminex Corporation, Myriad Genetics, Inc., OraSure Technologies, Inc., Quidel Corporation and Trinity Biotech Plc. We selected the companies in the customized peer group based on various considerations, including, without limitation, industry classifications, the extent to which certain companies may engage in businesses in which we engage, and the extent to which we and/or our investors consider certain companies to be direct or indirect competitors. The graph assumes that the value of the investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on September 30, 2014 and tracks it through September 30, 2019. +- 23 - +Table of Contents +ITEM 6. +SELECTED FINANCIAL DATA +Income Statement Information (Amounts in thousands, except per share data) +For the Year Ended September 30, +2019 +2018 +2017 +2016 +2015 +Net revenues +$ +201,014 +$ +213,571 +$ +200,771 +$ +196,082 +$ +194,830 +Gross profit +118,325 +130,697 +124,292 +127,212 +121,882 +Operating income +32,699 +31,584 +37,382 +51,378 +56,060 +Net earnings +24,382 +23,849 +21,557 +32,229 +35,540 +Basic earnings per share +$ +0.57 +$ +0.56 +$ +0.51 +$ +0.77 +$ +0.85 +Diluted earnings per share +$ +0.57 +$ +0.56 +$ +0.51 +$ +0.76 +$ +0.85 +Cash dividends declared per share +$ +0.250 +$ +0.500 +$ +0.575 +$ +0.800 +$ +0.800 +Book value per share +$ +4.47 +$ +4.14 +$ +4.02 +$ +3.95 +$ +3.96 +Balance Sheet Information +As of September 30, +2019 +2018 +2017 +2016 +2015 +Current assets +$ +144,761 +$ +139,053 +$ +133,875 +$ +126,791 +$ +119,422 +Current liabilities +20,914 +24,173 +22,887 +22,571 +15,251 +Total assets +325,478 +251,377 +249,777 +252,028 +183,282 +Long-term debt obligations +75,824 +50,180 +54,647 +58,360 +— +Shareholders’ equity +190,967 +175,418 +169,585 +166,472 +165,873 +ITEM 7. +MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL +CONDITION AND RESULTS OF OPERATIONS +Refer to “Note About Forward-Looking Statements” following the Index in front of this Form +10-K +and Item 1A “Risk Factors” on pages 11 through 20 of this Annual Report. +In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data +. +Results of Operations +: +Fourth Quarter +Net earnings for the fourth quarter of fiscal 2019 decreased 24% to $4,103, or $0.10 per diluted share, from net earnings for the fourth quarter of fiscal 2018 of $5,434, or $0.13 per diluted share. The fiscal 2019 fourth quarter results include $1,714 of costs associated with acquisition activities, restructuring activities and selected legal proceedings (combined impact on net earnings of $1,296, or $0.03 per diluted share). The fiscal 2018 fourth quarter results include $4,576 of costs associated with restructuring activities and selected legal proceedings, along with certain +one-time +tax effects of the U.S. tax reform act enacted in December 2017 (combined impact on net earnings of $3,145, or $0.07 per diluted share). Consolidated revenues for the fourth quarter of fiscal 2019 totaled $50,846, a decrease of 4% compared to the fourth quarter of fiscal 2018, also decreasing 3% on a constant-currency basis. +Revenues for the Diagnostics segment for the fourth quarter of fiscal 2019 decreased 9% compared to the fourth quarter of fiscal 2018 (also 9% on a constant-currency basis), comprised of a 22% decrease in molecular assay products and a 6% decrease in immunoassay and blood chemistry assay products. With a 13% decrease in its molecular reagents products and a 21% increase in its immunological reagents products, revenues for our Life Science segment increased 7% in the fourth quarter of fiscal 2019 compared to the fourth quarter of fiscal 2018. On a constant-currency basis, revenues for our Life Science Segment increased 9%. +- 24 - +Table of Contents +The fourth quarter Diagnostics revenues reflect continued competitive pressures in a number of our products, particularly +C. difficile +and foodborne, volume and pricing declines in certain gastrointestinal products, and the effects of initially lighter shipments of respiratory products in advance of the upcoming season. Life Science revenues for the fourth quarter reflect double-digit growth from IVD customers purchasing immunological reagents in the EMEA region, as well as China, offset by declines in transitioning our academic business to independent distributors in the Americas region. +Fiscal Year +Net earnings for fiscal 2019 increased 2% to $24,382, or $0.57 per diluted share, from net earnings for fiscal 2018 of $23,849, or $0.56 per diluted share. Fiscal 2019 results include $6,230 of costs associated with acquisition activities, restructuring activities and selected legal proceedings (combined impact on net earnings of $4,760, or $0.11 per diluted share). Fiscal 2018 results include $13,051 of costs associated with restructuring activities and selected legal proceedings, along with certain +one-time +tax effects of the U.S. tax reform act enacted in December 2017 (combined impact on net earnings of $7,856, or $0.18 per diluted share). Consolidated revenues decreased 6% to $201,014 for fiscal 2019 compared to fiscal 2018, decreasing 5% on a constant-currency basis. +In fiscal 2019, revenues for the Diagnostics segment decreased 9% compared to fiscal 2018 (8% on a constant-currency basis). This decrease is comprised of a 22% decrease in our molecular assay products and a 5% decrease in immunoassay and blood chemistry assay products. With a 5% decrease in its molecular reagents business and a 6% increase in its immunological reagents business, revenues of our Life Science segment increased 2% during fiscal 2019 compared to fiscal 2018, increasing 3% on a constant-currency basis. +Update on Lead Testing +On June 29, 2017, the FDA, in connection with its Safety Notification related to Magellan’s LeadCare +testing systems for venous blood samples, issued to Magellan its Form 483, Inspectional Observations. The FDA issued a related Warning Letter on October 23, 2017. As a result of these activities, during our 2017 third fiscal quarter, it was determined that a potential impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a “triggering event”). An impairment charge of $6,628, on both a +pre-tax +and +after-tax +basis, was recorded during the fiscal 2017 third quarter as set forth in Note 1(h), +“Summary of Significant Accounting Policies – Intangible Assets” +of the accompanying Consolidated Financial Statements. As also previously disclosed and set forth in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we continue to cooperate with the DOJ in this matter, including responding to additional information requests. We have executed tolling agreements to extend the statute of limitations. +Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare +® +II, LeadCare +® +Plus +™ +and LeadCare Ultra +® +testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of Magellan’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the FDA or the Centers for Disease Control and Prevention is necessary to protect the public health. Meridian intends to fully cooperate with the FDA as the third-party study is completed. +During October 2019, the FDA performed a +follow-up +inspection of Magellan’s manufacturing facility. The FDA issued five Form 483 observations. In November 2019, we submitted to the FDA our written responses to the five Form 483 observations and have implemented a remediation plan that we are actively working. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA. +- 25 - +Table of Contents +During fiscal 2019, 2018 and 2017, we incurred approximately $1,800 in aggregate remediation costs, primarily related to regulatory consultants and studies required to reinstate our venous blood sample claim. In the course of remediation, we may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of our products. At this time, we do not believe that any such notifications would impact the ability to use the LeadCare systems with capillary blood samples. +While we remain confident in the performance of the Magellan LeadCare testing systems using capillary samples, we do not expect that the FDA will reinstate our venous blood claims. We can provide no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation and the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, injunctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business, or on terms substantially similar to those on which we currently operate. +REVENUE OVERVIEW +Below are analyses of the Company’s revenue, by reportable segment, provided for each of the following: +- By Geographic Region +- By Product Platform/Type +Revenue Overview- By Reportable Segment & Geographic Region +Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease diagnostic products in Cincinnati, Ohio and Quebec City, Canada, and manufacturing operations for products detecting elevated lead levels in blood in Billerica, Massachusetts (near Boston). These diagnostic test products are sold and distributed in the countries comprising North and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia. +Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and the severity of seasonal diseases and outbreaks, and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major customers and foreign currency exchange rates. +See the “Revenue Disaggregation” section of Note 1, +“Significant Accounting Policies” +of the accompanying Consolidated Financial Statements for detailed revenue disaggregation information. +Following is a discussion of the revenues generated by these product platforms/types and/or disease states: +Diagnostics Products +The acquisition of the Revogene molecular diagnostics platform, the development of the Curian immunoassay platform, and the expansion of the related assay-menu for each of these platforms are important steps in addressing competitive pressures in our gastrointestinal and respiratory illness assay families. We are actively converting our existing Alethia install base to the Revogene platform for +C. difficile +, Group A +Streptococcus +and Group B +Streptococcus +assays. During our first 120 days since acquiring the Revogene platform, we have approximately 60 instrument installations. For the Curian immunoassay diagnostics platform, we submitted a 510(k) for the instrument and first assay, a test for +H. pylori +antigen in stool, in September 2019. We believe the advantages of the Curian analyzer will help protect our existing rapid test accounts. +- 26 - +Table of Contents +Gastrointestinal Assays +During fiscal 2019, revenues from our gastrointestinal products, which include tests for +C. difficile +, +H. pylori +and certain foodborne pathogens, among others, totaled $68,977. This represents a 13% decrease from fiscal 2018 and follows a less than 1% increase during fiscal 2018. We continue to face pricing and volume pressures within this product category that will carry into fiscal 2020 and beyond for our current products. We have executed multi-year supply agreements with our two largest reference laboratory customers for +H. pylori +tests to secure volume, albeit at lower selling prices. We continue to believe there are ongoing benefits to be realized from our partnerships with managed care companies in promoting: (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing. +Contributing to the competitive pressures being faced in this product category, the patents for our +H. pylori +products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our +H. pylori +products to continue to increase, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. In October 2018, we entered into a strategic collaboration with DiaSorin to sell +H. pylori +tests, one of only three other companies that market +FDA-cleared +tests to detect +H. pylori +antigen in stool samples in the U.S. market. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +Respiratory Illness Assays +Including tests for influenza, RSV, Group A Strep, Pertussis, and Mycoplasma pneumonia, among others, our respiratory illness product revenues decreased 8% in fiscal 2019, following a 21% increase in fiscal 2018. These revenue levels reflect a lighter 2018 – 2019 respiratory season, as compared to the particularly strong 2017 – 2018 respiratory season, as measured by the rate of laboratory-confirmed influenza hospitalizations (published by the CDC). +Blood Chemistry Assays +Revenues from our sale of products to test for elevated levels of lead in blood remained relatively flat during fiscal 2019 at $19,082. This follows fiscal 2018 revenues from such products increasing 5% over fiscal 2017. Nominal favorable pricing offset nominal volume declines in fiscal 2019. +Life Science Products +During fiscal 2019, revenues from our Life Science segment increased 2%, with revenues from molecular reagent sales decreasing 5% compared to fiscal 2018 and revenues from immunological reagent sales increasing 6%. Life Science segment revenues increased 10% in fiscal 2018, with revenues from molecular reagent sales increasing 12% compared to fiscal 2017 and revenues from immunological reagent sales increasing 9%. Our Life Science segment’s growth was impacted by the movement in currency exchange rates since fiscal 2018, with revenues increasing 3% on a constant-currency basis over fiscal 2018. During fiscal 2019, our Life Science segment continued to benefit from sales into China, with such sales totaling approximately $8,400 during fiscal 2019 – representing an approximate 1% increase over fiscal 2018. +Foreign Currency +Fluctuations in foreign currency exchange rates since fiscal 2018 had an approximate $2,200 unfavorable impact on fiscal 2019 revenues; $1,150 within the Diagnostics segment and $1,050 within the Life Science segment. This compares to +year-to-year +currency exchange rates having an approximate $2,200 favorable impact on revenues in fiscal 2018; $1,400 within the Diagnostics segment and $800 within the Life Science segment. Due to natural hedge relationships with expenses, both cost of sales and operating expenses, the overall impact of exchange rate fluctuations on net earnings was not significant during fiscal 2019, 2018 or 2017. +Significant Customers +Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 9 of the accompanying Consolidated Financial Statements. +- 27 - +Table of Contents +Gross Profit: +2019 +2018 +2017 +2019 vs. +2018 +Inc (Dec) +2018 vs. +2017 +Inc (Dec) +Gross Profit +$ +118,325 +$ +130,697 +$ +124,292 +(9 +%) +5 +% +Gross Profit Margin +59 +% +61 +% +62 +% +-2 points +-1 point +The overall gross profit margin decrease during fiscal 2019 primarily results from the combined effects of: (i) previously-noted pricing changes within our +H. pylori +product line; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; (iii) production capacity +ramp-up +costs for our newly acquired Quebec facility where Revogene instruments and test devices are made; and (iv) operating segment mix. The overall decrease in the gross profit margin from fiscal 2017 to fiscal 2018 reflects the combined effects of: (i) pricing pressure in our Diagnostics segment; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; and (iii) operating segment mix. +Operating Expenses - +Segment Detail +Research & +Development +Selling & +Marketing +General & +Administrative +Other +Total Operating +Expenses +Fiscal 2017: +Diagnostics +$ +13,433 +$ +22,942 +$ +13,268 +$ +6,628 +$ +56,271 +Life Science +2,603 +9,446 +7,493 +— +19,542 +Corporate +— +— +10,335 +762 +11,097 +Total 2017 Expenses +$ +16,036 +$ +32,388 +$ +31,096 +$ +7,390 +$ +86,910 +Fiscal 2018: +Diagnostics +$ +13,742 +$ +25,002 +$ +19,397 +$ +4,032 +$ +62,173 +Life Science +3,047 +9,466 +8,111 +1,240 +21,864 +Corporate +— +— +7,297 +7,779 +15,076 +Total 2018 Expenses +$ +16,789 +$ +34,468 +$ +34,805 +$ +13,051 +$ +99,113 +Fiscal 2019: +Diagnostics +$ +14,711 +$ +23,058 +$ +19,191 +$ +3,446 +$ +60,406 +Life Science +3,237 +5,388 +6,034 +188 +14,847 +Corporate +— +— +7,777 +2,596 +10,373 +Total 2019 Expenses +$ +17,948 +$ +28,446 +$ +33,002 +$ +6,230 +$ +85,626 +- 28 - +Table of Contents +Operating Expenses - +Comparisons to Prior Year +Periods +Research & +Development +Selling & +Marketing +General & +Administrative +Other +Total Operating +Expenses +2017 Expenses +$ +16,036 +$ +32,388 +$ +31,096 +$ +7,390 +$ +86,910 +% of Revenues +8 +% +16 +% +15 +% +4 +% +43 +% +Fiscal 2018 Increases (Decreases): +Diagnostics +309 +2,060 +6,129 +(2,596 +) +5,902 +Life Science +444 +20 +618 +1,240 +2,322 +Corporate +— +— +(3,038 +) +7,017 +3,979 +2018 Expenses +$ +16,789 +$ +34,468 +$ +34,805 +$ +13,051 +$ +99,113 +% of Revenues +8 +% +16 +% +16 +% +6 +% +46 +% +% Increase +5 +% +6 +% +12 +% +77 +% +14 +% +Fiscal 2019 Increases (Decreases): +Diagnostics +969 +(1,944 +) +(206 +) +(586 +) +(1,767 +) +Life Science +190 +(4,078 +) +(2,077 +) +(1,052 +) +(7,017 +) +Corporate +— +— +480 +(5,183 +) +(4,703 +) +2019 Expenses +$ +17,948 +$ +28,446 +$ +33,002 +$ +6,230 +$ +85,626 +% of Revenues +9 +% +14 +% +16 +% +3 +% +43 +% +% Increase (Decrease) +7 +% +(17 +%) +(5 +%) +(52 +%) +(14 +%) +Total operating expenses fluctuated during fiscal 2019 and fiscal 2018 primarily as a result of the combined effects of the following: +Fiscal 2019 decrease +• +Increased Research & Development costs, reflecting the addition of the GenePOC business expenses for the development of the GI and RI panel assays since the June 3, 2019 date of acquisition being more than offset by the decreased expenditures resulting from the timing of product development projects and the clinical trials for our cCMV test in fiscal 2018; +• +Decreased Selling & Marketing costs due to: (i) the effects of the fiscal 2018 organization streamlining initiatives; and (ii) lower sales commissions resulting from the decrease in sales levels; +• +Decreased General & Administrative costs, reflecting the effects of the fiscal 2018 organization streamlining initiatives and lower Quality System remediation costs related to our blood-lead manufacturing facility, partially offset by the addition of the GenePOC business expenses, including purchase accounting amortization; and +• +Decreased restructuring & selected legal costs, along with the effects of the fiscal 2019 acquisition-related costs (reflected within “Other” in the above tables). +Fiscal 2018 increase +• +Increased Selling & Marketing costs, reflecting increased commission and bonus payments made in connection with the increased revenue levels, along with costs associated with the new branding strategy; +• +Increased General & Administrative costs due in large part to the cash incentive compensation resulting from the revenue and net earnings results achieved, along with increased Quality System remediation costs related to Magellan; +- 29 - +Table of Contents +• +Increased restructuring costs, reflecting: (i) compensation and benefits for our previous Executive Chairman and CEO throughout fiscal 2018, the period during which we also have the compensation and benefits of a new CEO; and (ii) the costs of terminations and related expenses incurred in connection with realigning our business structure; and +• +Increased legal costs related to the matters discussed in Item 3. “Legal Proceedings”. +Operating Income +Operating income increased 4% in fiscal 2019, following a 15% decrease in fiscal 2018, as a result of the factors discussed above, including the acquisition-related, restructuring and selected legal costs in each of the fiscal years and the Magellan goodwill impairment charge in fiscal 2017. +Other Income and Expense +Other income and expense in fiscal 2019, 2018 and 2017 includes interest costs on the Company’s long-term borrowings, which are comprised of the following during these fiscal years: +• +Draws on the revolving credit facility used to fund acquisition of the business of GenePOC and pay off the term loan used to fund the March 2016 acquisition of Magellan (May 2019 – September 2019), bearing interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR. +• +Term loan used to fund the acquisition of Magellan (March 2016 – May 2017), bearing interest at an effective rate of 2.76%. +Income Taxes +The effective rate for income taxes was 23%, 21% and 41% for fiscal 2019, 2018 and 2017, respectively. These rates reflect the combined effect of various components of the tax reform act (see Note 6, +“Income Taxes” +of the accompanying Consolidated Financial Statements) including: (i) the lowering of the applicable tax rate; (ii) the accompanying +re-measurement +of deferred tax balances at the lower rate; and (iii) the various foreign-income related items, such as the repatriation transition tax, the tax deduction related to Foreign Derived Intangible Income, and the tax related to Global Intangible +Low-Taxed +Income and foreign tax credits. +Impact of Inflation +To the extent feasible, we have consistently followed the practice of adjusting our prices to reflect the impact of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. Inflation and changing prices did not have a material adverse impact on our gross margin, revenues or operating income in fiscal 2019, 2018 or 2017. +Liquidity and Capital Resources +: +Liquidity +Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets, debt service, and consideration of common share dividends. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities. +We have an investment policy that guides the holdings of our investment portfolio, which presently consists of bank savings accounts and institutional money market mutual funds. Our objectives in managing the investment portfolio are to: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective. +- 30 - +Table of Contents +Considering the various worldwide +geo-political +and +geo-economic +conditions (including Brexit, as more fully discussed within the “Risk Factors” section of Part 1A), we do not expect macroeconomic conditions to have a significant impact on our liquidity needs, financial condition or results of operations, although no assurances can be made in this regard. We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through the amount remaining available on our $125,000 bank revolving credit facility, which totaled approximately $49,200 as of September 30, 2019. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services. +As of September 30, 2019, our cash and equivalents balance is $62,397 or $2,634 higher than at the end of fiscal 2018. This increase results in large part from the cash flows from operating activities being more than sufficient to cover capital expenditures, shareholder dividends for two quarters and debt service. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next 12 months. +Following the declaration of a $0.125 first quarter cash dividend consistent with the previously established $0.50 per share annual indicated dividend rate, effective for the second quarter of fiscal 2019, we suspended the payment of our quarterly cash dividend. The dividend was suspended as part of our regular evaluation of capital allocation, with the action taken in order to deploy cash into new product development activities for the Revogene molecular diagnostic platform, as well as the Curian and PediaStat platforms, among other investments, and to preserve capital resources and liquidity for general corporate purposes. +Capital Resources +As described in Note 5, +“Bank Credit Arrangements” +of the accompanying Consolidated Financial Statements, on May 24, 2019, in connection with the acquisition of the GenePOC business, the Company executed a new five-year $125,000 revolving credit facility to replace our previously-existing $30,000 credit facility. The new credit facility is secured by substantially all of our assets and includes certain restrictive financial covenants. To date, we have drawn down $75,824 on this new facility, using the proceeds to repay our previously-existing term loan and, along with cash +on-hand, +fund the acquisition of the GenePOC business. +Our capital expenditures totaled $3,797 for fiscal 2019 and were largely related to laboratory and manufacturing equipment. During fiscal 2020 our capital expenditures are estimated to range between approximately $4,000 to $5,000, with the actual amount dependent upon actual operating results and the phasing of certain projects. Such expenditures may be funded with cash and equivalents on hand, operating cash flows and/or availability under the $125,000 revolving credit facility discussed above. +Known Contractual Obligations +: +In addition to the obligations related to the revolving credit facility noted above and detailed in Note 5, +“Bank Credit Arrangements” +of the accompanying Consolidated Financial Statements, the Company’s known contractual obligations and their related due dates were as follows as of September 30, 2019: +Total +Less than 1 +Year +1-3 +Years +4-5 +Years +More than +5 Years +Operating leases +(1) +$ +6,567 +$ +1,528 +$ +3,711 +$ +1,145 +$ +183 +Purchase obligations +(2) +14,995 +14,203 +737 +55 +— +Acquisition price holdback and contingent consideration +(3) +75,000 +— +75,000 +— +— +Uncertain income tax positions liability and interest +(4) +511 +511 +— +— +— +Total +$ +97,073 +$ +16,242 +$ +79,448 +$ +1,200 +$ +183 +- 31 - +Table of Contents +(1) +Meridian and its subsidiaries are parties to a number of operating lease agreements around the world, the majority of which relate to office and warehouse building leases expiring at various dates. +(2) +Purchase obligations relate primarily to outstanding purchase orders for inventory, including instruments, service items, and research and development activities. These contractual commitments are not in excess of expected production requirements over the next twelve months. +(3) +Pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC, Meridian’s maximum remaining consideration to be paid totals $75,000. As noted below and detailed in Note 2, +“Acquisition of Business of GenePOC” +of the accompanying Consolidated Financial Statements, this amount is comprised of: (i) a $5,000 purchase price holdback; and (ii) up to $70,000 of payments contingent upon the achievement of certain product development milestones and financial performance targets, the preliminary valuation of which totals approximately $27,200 as of September 30, 2019. +(4) +Due to inherent uncertainties in the timing of settlement of tax positions, we are unable to estimate the timing of the effective settlement of these obligations. +Other Commitments and Off-Balance Sheet Arrangements +: +License Agreements +Meridian has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related products. Approximately 84% of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from 3% to 8%. Meridian expects that payments under these agreements will amount to approximately $2,100 in fiscal 2020. +Contingent Consideration for Acquisition of Business of GenePOC +Details of the purchase price holdback and contingent consideration due to be paid pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC are set forth in Note 2, +“Acquisition of Business of GenePOC” +of the accompanying Consolidated Financial Statements. +Off-Balance +Sheet Arrangements +We do not utilize special-purpose financing vehicles or have undisclosed +off-balance +sheet arrangements. +Market Risk Exposure +: +Foreign Currency Risk +We have market risk exposure related to foreign currency transactions from our operations outside the United States, as well as certain suppliers to our domestic businesses located outside the United States. The foreign currencies where we have market risk exposure are the Australian dollar, British pound, Canadian dollar, Chinese yuan and Euro. Assessing foreign currency exposures is a component of our overall ongoing risk management process, with such currency risks managed as we deem appropriate. +Concentration of Customers/Products Risk +Our Diagnostics segment’s revenues from sales through two U.S. distributors were 26% of the segment’s total revenues or 18% of consolidated revenues for fiscal 2019. Additionally, our three major product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 84% of our Diagnostics segment’s third-party revenues during fiscal 2019, and 57% of our fiscal 2019 consolidated revenues. +Our Life Science segment’s revenues from sales of purified antigens and reagents to two diagnostics manufacturing customers were 24% of the segment’s total revenues for fiscal 2019, and 8% of our fiscal 2019 consolidated revenues. +- 32 - +Table of Contents +Critical Accounting Policies +: +The consolidated financial statements included in this Annual Report on Form +10-K +have been prepared in accordance with accounting principles generally accepted in the United States. Such accounting principles require management to make judgments about estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Listed below are the accounting policies management believes to be critical to understanding the accompanying Consolidated Financial Statements, along with reference to location of the policy discussion within the accompanying financial statements. The listed policies are considered critical due to the fact that application of such polices requires the use of significant estimates and assumptions, and the carrying values of related assets and liabilities are material. +Accounting Policy +Location +Within Consolidated +Financial Statements +Examples of Key Estimate Assumptions +Inventories +Note 1(f) +Slow-moving, excess & obsolete inventories +Intangible Assets +Note 1(h) +Triggering events and impairment conditions +Revenue Recognition +Note 1(i) +Distributor price adjustments and fee accruals +Fair Value Measurements +Note 1(j) +Valuation of contingent consideration +Income Taxes +Note 1(l) and Note 6 +Uncertain tax positions and state apportionment factors +Recent Accounting Pronouncements +: +A description of accounting pronouncements recently adopted by the Company, as well as accounting pronouncements issued but not yet adopted by the Company, are set forth in Note 1(q) of the accompanying Consolidated Financial Statements. +ITEM 7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +See Market Risk Exposure and Capital Resources under Item 7 above beginning on page 24. +- 33 - +Table of Contents +ITEM 8. +FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +Index to Consolidated Financial Statements +Management’s Report on Internal Control over Financial Reporting +35 +Reports of Independent Registered Public Accounting Firm +36 +Consolidated Statements of Operations for the years ended September 30, 2019, 2018 and 2017 +41 +Consolidated Statements of Comprehensive Income for the years ended September 30, 2019, 2018 and 2017 +42 +Consolidated Statements of Cash Flows for the years ended September 30, 2019, 2018 and 2017 +43 +Consolidated Balance Sheets as of September 30, 2019 and 2018 +44 +Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2019, 2018 and 2017 +46 +Notes to Consolidated Financial Statements +47 +Schedule No. II – Valuation and Qualifying Accounts for the years ended September 30, 2019, 2018 and 2017 +74 +All other supplemental schedules are omitted due to the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or Notes thereto. +- 34 - +Table of Contents +Management’s Report on Internal Control over Financial Reporting +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule +13a-15(f). +The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) 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 can only provide reasonable assurance and 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. +Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2019, based on the framework and criteria in the 2013 +Internal Control – Integrated Framework, +issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on management’s evaluation and those criteria, the Company concluded that its system of internal control over financial reporting was effective as of September 30, 2019. The Company’s assessment of and conclusion on the effectiveness of its internal control over financial reporting did not include the internal controls of Meridian Bioscience Canada, Inc. (“GenePOC”), which was acquired during fiscal 2019 and the results of which since the date of acquisition were included in the 2019 consolidated financial statements. GenePOC constituted $9,250 or 2.84% of the Company’s total assets as of September 30, 2019, and $75 or 0.04% of total net revenues, for the year ended September 30, 2019. +The Company’s independent registered public accounting firm has issued an attestation report on the registrant’s internal control over financial reporting. +/s/ Jack Kenny +/s/ Bryan T. Baldasare +Jack Kenny +Bryan T. Baldasare +Chief Executive Officer +Executive Vice President and +November 26, 2019 +Chief Financial Officer +November 26, 2019 +- 35 - +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Shareholders +Meridian Bioscience, Inc. +Opinion on the financial statements +We have audited the accompanying consolidated balance sheets of Meridian Bioscience Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2019, and the related notes and financial statement schedule listed in the index appearing under Schedule No. II (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2019, in conformity with accounting principles generally accepted in the United States of America. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2019, based on criteria established in the 2013 +Internal Control—Integrated Framework +issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November 26, 2019 expressed an unqualified opinion. +Basis for opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical audit matters +The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. +Distributor price adjustment accrual (rebate reserve) +As described further in Note 1(i) to the consolidated financial statements, revenue is reduced at the date of sale for product price adjustments for certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, historical statistics, current trends and other factors. The balance of the accrual was $3.4 million at September 30, 2019. We identified the distributor price adjustment accrual (referred to as the rebate reserve) as a critical audit matter. +- 36 - +Table of Contents +The principal consideration for our determination that the rebate reserve is a critical audit matter is the high degree of auditor subjectivity necessary in evaluating certain inputs and assumptions made by management in estimating the amount of the rebate reserve. The nature of audit evidence includes unobservable inputs and assumptions used by management in the estimate, and reliance on a customized sales report by product line. The reserve has a high degree of estimation uncertainty given management’s judgments used to determine the reserve, specifically the use of key assumptions such as average selling price, purchasing trends of distributors and historical product sales and product volume data used to predict future sales and volume levels. +Our audit procedures related to the rebate reserve included the following, among others. +• +We tested the design and operating effectiveness of controls relating to management’s calculation and review of the reserve which included verifying the completeness of the input data, mathematical accuracy of the calculation and evaluating the reasonableness of key assumptions used in the calculation. +• +We tested the reserve calculation prepared by management by performing specific procedures on the key inputs and assumptions such as the monthly sales volume, validity of distributor agreements and applied reserve percentage. The procedures performed are as follows: +• +We tested the completeness and accuracy of the historical sales (including average selling price) and volume report used in the calculation of the reserve by agreeing total sales to accounting records and tracing a sample of individual sales to supporting audit evidence, such as purchase orders, shipping documents and invoices. +• +We evaluated the existence and validity of distributor agreements by obtaining a sample of issued credit memos and executed distributor agreements to test compliance with the stated terms in the corresponding agreements. +• +We analyzed year over year trends in the reserve in comparison with revenue trends to further evaluate reasonableness of the estimate and consistency with expectations. +Valuation of intangible assets and contingent consideration +As described in Note 2 to the consolidated financial statements, the Company completed an acquisition which resulted in goodwill of $35.1 million, intangible assets of $40.4 million, and contingent consideration of $27.2 million. The determination of the fair value of the intangible assets acquired and contingent consideration required management, with the help of a third-party valuation specialist, to make significant estimates and assumptions including the assumed sales growth rate, margin percentages, economic life and discount rate. We identified the valuation of intangible assets and contingent consideration as a critical audit matter. +The principal consideration for our determination that the valuation of intangible assets and contingent consideration associated with the acquisition is a critical audit matter is the subjective auditor judgment required in evaluating the inputs and assumptions used by management in determining fair value. The valuation of the intangible assets and contingent consideration are subject to higher estimation uncertainty due to management judgments in determining key assumptions that include the assumed sales growth rate, margin percentages, economic life and discount rate. Changes in these significant assumptions could have a significant impact on the fair value of the intangible assets and contingent consideration. +Our audit procedures related to the valuation of intangible assets and contingent consideration included the following, among others. +• +We tested the design and operating effectiveness of controls relating to the valuation report and allocation of purchase price which included management’s review of the valuation report for the completeness and mathematical accuracy of the data, and evaluating the reasonableness of assumptions used in the calculation such as economic life and discount rate. +• +We utilized a valuation specialist to assist in evaluating the appropriateness of the Company’s valuation models developed for acquired assets and evaluating the reasonableness of significant assumptions used including the assumed sales growth rate, margin percentages, economic life and discount rate as compared to industry/market data. +- 37 - +Table of Contents +• +We evaluated whether the assumptions used were reasonable by considering past performance of similar technological assets, industry data, current market forecasts, and whether such assumptions were consistent with evidence obtained in other areas of the audit. +/s/ GRANT THORNTON LLP +We have served as the Company’s auditor since 2005. +Cincinnati, Ohio +November 26, 2019 +- 38 - +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Shareholders +Meridian Bioscience, Inc. +Opinion on internal control over financial reporting +We have audited the internal control over financial reporting of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2019, based on criteria established in the 2013 +Internal Control—Integrated Framework +issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019, based on criteria established in the 2013 +Internal Control—Integrated Framework +issued by COSO. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended September 30, 2019, and our report dated November 26, 2019 expressed an unqualified opinion on those financial statements. +Basis for opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Meridian Bioscience Canada, Inc. (“GenePOC”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 2.84 and 0.04 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2019. As indicated in Management’s Report, GenePOC was acquired during fiscal 2019. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of GenePOC. +Definition and limitations of internal control over financial reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +- 39 - +Table of Contents +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/ GRANT THORNTON LLP +Cincinnati, Ohio +November 26, 2019 +- 40 - +Table of Contents +CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2019 +2018 +2017 +Net Revenues +$ +201,014 +$ +213,571 +$ +200,771 +Cost of Sales +82,689 +82,874 +76,479 +Gross Profit +118,325 +130,697 +124,292 +Operating Expenses: +Research and development +17,948 +16,789 +16,036 +Selling and marketing +28,446 +34,468 +32,388 +General and administrative +33,002 +34,805 +31,096 +Acquisition-related costs +1,808 +— +— +Restructuring costs +2,839 +8,706 +134 +Selected legal +costs +1,583 +4,345 +628 +Goodwill impairment charge +— +— +6,628 +Total operating expenses +85,626 +99,113 +86,910 +Operating Income +32,699 +31,584 +37,382 +Other Income (Expense): +Interest income +681 +418 +171 +Interest expense +( 1,945 +) +( 1,520 +) +( 1,642 +) +Other, net +122 +( 102 +) +518 +Total other expense +( 1,142 +) +( 1,204 +) +( 953 +) +Earnings Before Income Taxes +31,557 +30,380 +36,429 +Income Tax Provision +7,175 +6,531 +14,872 +Net Earnings +$ +24,382 +$ +23,849 +$ +21,557 +Earnings Per Share Data: +Basic earnings per common share +$ +0.57 +$ +0.56 +$ +0.51 +Diluted earnings per common share +$ +0.57 +$ +0.56 +$ +0.51 +Common shares used for basic earnings per common share +42,571 +42,325 +42,188 +Effect of dilutive stock options and restricted share units +328 +429 +383 +Common shares used for diluted earnings per common share +42,899 +42,754 +42,571 +Dividends declared per common share +$ +0.250 +$ +0.500 +$ +0.575 +Anti-dilutive Securities: +Common share options and restricted share units +1,129 +1,007 +873 +The accompanying notes are an integral part of these consolidated financial statements. +- +4 +1 +- +Table of Contents +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2019 +2018 +2017 +Net Earnings +$ +24,382 +$ +23,849 +$ +21,557 +Other comprehensive income (loss): +Foreign currency translation adjustment +( 802 +) +( 1,075 +) +1,616 +Unrealized gain (loss) on cash flow hedge +( 1,159 +) +907 +1,544 +Amortization of gain on cash flow hedge +( 102 +) +— +— +Income taxes related to items of other comprehensive income +465 +( 263 +) +( 590 +) +Other comprehensive income (loss), net of tax +( 1,598 +) +( 431 +) +2,570 +Comprehensive Income +$ +22,784 +$ +23,418 +$ +24,127 +The accompanying notes are an integral part of these consolidated financial statements. +- +4 +2 +- +Table of Contents +CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2019 +2018 +2017 +Cash Flows From Operating Activities +Net earnings +$ +24,382 +$ +23,849 +$ +21,557 +Non-cash +items included in net earnings: +Depreciation of property, plant and equipment +5,433 +4,491 +4,342 +Amortization of intangible assets +4,531 +3,433 +3,776 +Amortization of deferred instrument costs +— +764 +972 +Stock-based compensation +3,251 +3,402 +3,381 +Goodwill impairment charge +— +— +6,628 +Deferred income taxes +( 817 +) +( 300 +) +1,474 +Losses on +dispositions of +long-lived assets +632 +— +— +Change in the following, net of acquisition: +Accounts receivable +( 2,314 +) +( 4,447 +) +( 1,211 +) +Inventories +3,841 +( 1,142 +) +3,467 +Prepaid expenses and other current assets +( 2,044 +) +323 +1,225 +Accounts payable and accrued expenses +( 2,315 +) +4,124 +( 3,151 +) +Income taxes payable +1,793 +( 524 +) +( 384 +) +Other, net +( 542 +) +810 +( 721 +) +Net cash provided by operating activities +35,831 +34,783 +41,355 +Cash Flows From Investing Activities +Purchase of property, plant and equipment +( 3,797 +) +( 4,201 +) +( 4,467 +) +Disposal +s +of property, plant and equipment +669 +— +— +Acquisition of GenePOC business +( 45,324 +) +— +— +Net cash used for investing activities +( 48,452 +) +( 4,201 +) +( 4,467 +) +Cash Flows From Financing Activities +Dividends paid +( 10,612 +) +( 21,170 +) +( 24,266 +) +Proceeds from revolving credit facility +75,824 +— +— +Payment of debt issuance costs +( 489 +) +— +— +Payments on term loan +( 50,250 +) +( 4,500 +) +( 3,750 +) +Proceeds and tax benefits from exercises of stock options +787 +187 +303 +Payment of acquisition consideration +— +( 2,110 +) +— +Net cash provided by (used for) financing activities +15,260 +( 27,593 +) +( 27,713 +) +Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash +( 1,005 +) +( 298 +) +671 +Net Increase in Cash and Equivalents and Restricted Cash +1,634 +2,691 +9,846 +Cash and Equivalents and Restricted Cash at Beginning of Period +60,763 +58,072 +48,226 +Cash and Equivalents and Restricted Cash at End of Period +$ +62,397 +$ +60,763 +$ +58,072 +Cash and Equivalents +$ +62,397 +$ +59,763 +$ +57,072 +Restricted Cash +— +1,000 +1,000 +Cash and Equivalents and Restricted Cash at End of Period +$ +62,397 +$ +60,763 +$ +58,072 +Supplemental Cash Flow Information: +See Notes 1(g), 2, 5 and 6. +The accompanying notes are an integral part of these consolidated financial statements. +- +4 +3 +- +Table of Contents +CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +As of September 30, +2019 +2018 +Assets +Current Assets: +Cash and equivalents +$ +62,397 +$ +59,763 +Accounts receivable, less allowances of $ 537 and $ 310 , respectively +35,608 +32,336 +Inventories +39,617 +41,993 +Prepaid expenses and other current assets +7,139 +4,961 +Total current assets +144,761 +139,053 +Property, Plant and Equipment, at Cost: +Land +982 +1,160 +Buildings and improvements +31,904 +32,444 +Machinery, equipment and furniture +64,155 +50,606 +Construction in progress +522 +1,631 +Subtotal +97,563 +85,841 +Less: accumulated depreciation and amortization +66,996 +55,846 +Net property, plant and equipment +30,567 +29,995 +Other Assets: +Goodwill +89,241 +54,637 +Other intangible assets, net +60,243 +23,113 +Restricted cash +— +1,000 +Deferred instrument costs, net +— +1,239 +Fair value of interest rate swap +— +1,722 +Deferred income taxes +156 +130 +Other assets +510 +488 +Total other assets +150,150 +82,329 +Total assets +$ +325,478 +$ +251,377 +The accompanying notes are an integral part of these consolidated financial statements. +- 4 +4 +- +Table of Contents +CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +As of September 30, +2019 +2018 +Liabilities and Shareholders’ Equity +Current Liabilities: +Accounts payable +$ +7,238 +$ +6,260 +Accrued employee compensation costs +7,938 +9,195 +Other accrued expenses +3,758 +3,133 +Current portion of long-term debt +— +5,250 +Income taxes payable +1,980 +335 +Total current liabilities +20,914 +24,173 +Non-Current Liabilities: +Acquisition consideration +32,202 +— +Post-employment benefits +2,500 +2,646 +Long-term debt +75,824 +44,930 +Long-term income taxes payable +549 +441 +Deferred income taxes +2,522 +3,769 +Total +non-current +liabilities +113,597 +51,786 +Commitments and Contingencies +Shareholders’ Equity: +Preferred stock, no par value; 1,000,000 shares authorized; none issued +— +— +Common shares, no par value; 71,000,000 shares authorized, 42,712,296 and 42,399,962 issued, respectively +— +— +Additional +paid-in +capital +132,834 +129,193 +Retained earnings +63,108 +49,602 +Accumulated other comprehensive loss +( 4,975 +) +( 3,377 +) +Total shareholders’ equity +190,967 +175,418 +Total liabilities and shareholders’ equity +$ +325,478 +$ +251,377 +The accompanying notes are an integral part of these consolidated financial statements. +- +4 +5 +- +Table of Contents +CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollar and share amounts in thousands, except per share data) +Meridian Bioscience, Inc. and Subsidiaries +Common +Shares +Issued +Additional +Paid-in +Capital +Retained +Earnings +Accum +Other +Comp +Income +(Loss) +Total +B +alance at September 30, 2016 +42,107 +$ +122,356 +$ +49,632 +$ +( 5,516 +) +$ +166,472 +Cash dividends paid - $ 0.575 per share +— +— +( 24,266 +) +— +( 24,266 +) +Conversion of restricted share units +and exercise of stock options +100 +( 129 +) +— +— +( 129 +) +Stock compensation expense +— +3,381 +— +— +3,381 +Net earnings +— +— +21,557 +— +21,557 +Foreign currency translation adjustment +— +— +— +1,616 +1,616 +Hedging activity, net of tax +— +— +— +954 +954 +Balance at September 30, 2017 +42,207 +125,608 +46,923 +( 2,946 +) +169,585 +Cash dividends paid - $ 0.500 per share +— +— +( 21,170 +) +— +( 21,170 +) +Conversion of restricted share units +and ex +ercise of stock options +193 +183 +— +— +183 +Stock compensation expense +— +3,402 +— +— +3,402 +Net earnings +— +— +23,849 +— +23,849 +Foreign currency translation adjustment +— +— +— +( 1,075 +) +( 1,075 +) +Hedging activity, net of tax +— +— +— +644 +644 +Balance at September 30, 2018 +42,400 +129,193 +49,602 +( 3,377 +) +175,418 +Cash dividends paid - $ 0.250 per share +— +— +( 10,612 +) +— +( 10,612 +) +Conversion of restricted share units and exercise of stock options +312 +390 +— +— +390 +Stock compensation expense +— +3,251 +— +— +3,251 +Net earnings +— +— +24,382 +— +24,382 +Foreign currency translation adjustment +— +— +— +( 802 +) +( 802 +) +Hedging activity, net of tax +— +— +— +( 944 +) +( 944 +) +Adoption of ASU +2014-09 +— +— +( 116 +) +— +( 116 +) +Adoption of ASU +2018-02 +— +— +( 148 +) +148 +— +Balance at September 30, 2019 +42,712 +$ +132,834 +$ +63,108 +$ +( 4,975 +) +$ +190,967 +The accompanying notes are an integral part of these consolidated financial statements. +- +4 +6 +- +Table of Contents +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +Meridian Bioscience, Inc. and Subsidiaries +(dollar and share amounts in thousands, except per share data) +(1) +Summary of Significant Accounting Policies +(a) +Nature of Business +- +Meridian is a fully-integrated life science company whose principal businesses are: (i) the development, manufacture and distribution of clinical diagnostic test kits primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by other diagnostic manufacturers and researchers +. +(b) +Principles of Consolidation - +The consolidated financial statements include the accounts of Meridian Bioscience, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to “Meridian,” “we,” “us,” “our” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries. +(c) +Use of Estimates +- +The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +( +d +) +Foreign Currency Translation +- Assets and liabilities of foreign operations are translated using +year-end +exchange rates with gains or losses resulting from translation included as a separate component of accumulated other comprehensive income or loss. Revenues and expenses are translated using exchange rates prevailing during the year. We also recognize foreign currency transaction gains and losses on certain assets and liabilities that are denominated in the Australian dollar, British pound, Canadian dollar, Chinese yuan and Euro currencies. These gains and losses are included in other income and expense in the accompanying Consolidated Statements of Operations. +(e) +Cash, Cash Equivalents and Investments +- +The primary objectives of our investment activities are to preserve capital and provide sufficient liquidity to meet operating requirements and fund strategic initiatives such as acquisitions. We maintain a written investment policy that governs the management of our investments in fixed income securities. This policy, among other things, provides that we may purchase only high credit-quality securities that have short-term ratings of at least +A-2, +P-2 +and +F-2, +and long-term ratings of at least A, Baa1 and A, by Standard & Poor’s, Moody’s and Fitch, respectively, at the time of purchase. We consider short-term investments with original maturities of 90 days or less to be cash equivalents, including institutional money market funds. At times our investments of cash and equivalents with various high credit quality financial institutions may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. +Our investment portfolio includes the following components: +September 30, 2019 +September 30, 2018 +Cash and +Equivalents +Other +Cash and +Equivalents +Other +Institutional money market funds +$ +20,913 +$ +— +$ +20,421 +$ +— +Cash on hand – +Restricted +— +— +— +1,000 +Unrestricted +41,484 +— +39,342 +— +Total +$ +62,397 +$ +— +$ +59,763 +$ +1,000 +- +4 +7 +- +Table of Contents +(f) +Inventories +- Inventories are stated at the lower of cost or market. Cost is determined on a +first-in, +first-out +(FIFO) basis. Testing instruments are carried in inventory until they are sold outright or placed with a customer under the customer reagent rental program, at which time they are transferred to property, plant and equipment. +We establish reserves against cost for excess and obsolete materials, finished goods whose shelf life may expire before sale to customers, and other identified exposures. Such reserves were $ 2,285 and $ 1,971 at September 30, 2019 and 2018, respectively. We estimate these reserves based on assumptions about future demand and market conditions. If actual demand and market conditions were to be less favorable than such estimates, additional inventory write-downs would be required and recorded in the period known. Such adjustments would negatively affect gross profit margin and overall results of operations +. +(g) +Property, Plant and Equipment +- Property, plant and equipment are stated at cost. Upon retirement or other disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line method in amounts sufficient to +write-off +the cost over the estimated useful lives, generally as follows: +Buildings and improvements - 18 to 40 years +Leasehold improvements - life of the lease +Machinery, equipment and furniture - 3 to 10 years +Computer equipment and software - 3 to 5 years +Instruments under customer reagent rental arrangements - 5 years +Supplemental Cash Flow Information (Non-Cash Capital Expenditures) +Additions to property, plant and equipment for which cash remained unpaid at fiscal +year-end +totaled $ +108 +, $ +294 +and $ +394 +in fiscal +2019 +, +2018 +and +2017 +, respectively. +(h) +Intangible Assets - +Goodwill is subject to an annual impairment review (or more frequently if impairment indicators arise) at the reporting unit level, which we perform annually as of June 30, the end of our third fiscal quarter. A reporting unit is generally an operating segment or one level below an operating segment that constitutes a business for which discrete financial information is available and regularly reviewed by segment management. Following the fiscal 2018 restructuring and consolidation of +separately-run +businesses into two integrated global business units (see Note 3), at September 30, 2019 and September 30, 2018, we had two reporting units (Diagnostics and Life Science), both of which contained goodwill. We review our reporting unit structure annually, or more frequently if facts and circumstances warrant. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. We have no intangible assets with indefinite lives other than goodwill. +D +uring fiscal 2019 and fiscal 2018, we performed quantitative assessments as of June 30 for each of our Diagnostics and Life Science reporting units. As part of this assessment, fair value, as determined through a valuation performed by a third party, was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, the fair value of each reporting unit exceeded its carrying value; therefore, each of the Diagnostics and Life Science reporting units satisfied the quantitative assessment for each of fiscal 2019 and fiscal 2018. +Similarly, during fiscal 2017, we performed quantitative assessments as of June 30, 2017 for each of our Americas Diagnostics, Bioline and Life +Science-U.S. +reporting units that existed at that time, noting the separate Magellan discussion below. As part of this assessment, fair value, as determined through a valuation performed by a third party, was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, the fair value of each reporting unit exceeded its carrying value; therefore, each of the Americas Diagnostics, Bioline and Life +Science-U.S. +reporting units satisfied the quantitative assessment for fiscal 2017. +During the quarter ended June 30, 2017, the events described below occurred, indicating that impairment of the goodwill recorded as part of the Magellan acquisition had occurred. +- +4 +8 +- +Table of Contents +On May 17, 2017, the FDA issued a field safety notice advising customers to discontinue use of Magellan’s lead testing systems with venous blood samples. This field safety notice was followed by product recall notices on May 25 +th +and June 5 +th +. Subsequent to the issuances of these field safety and product recall notices, the FDA completed an inspection of Magellan’s quality system, and issued its Form 483, Inspectional Observations, on June 29, 2017, which was expectedly followed by a Warning Letter issued on October 23, 2017. The Warning Letter requires periodic reporting on our remediation progress +. +In light of these factors and their impacts, during the third quarter of fiscal 2017, it was determined that a potential impairment of goodwill recorded in connection with the acquisition of Magellan had occurred (i.e., a “triggering event”). With the assistance of an independent valuation firm, Magellan’s fair value was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, it was determined that the carrying value of the Magellan reporting unit did, in fact, exceed its fair value. As a result, an impairment charge of $ 6,628 , on both a +pre-tax +and +after-tax +basis, was recorded during the third quarter and is reflected as a separate operating expense line item within the accompanying Consolidated Statement of Operations for the year ended September 30, 2017. This quantitative assessment as of May 31, 2017 was supplemented by a qualitative assessment of Magellan’s goodwill as of June 30, 2017, with such assessment indicating that no additional impairment existed. +During fiscal +2019, goodwill increased $ 34,604 , reflecting the addition of $ 34,582 +in connection with the acquisition of the GenePOC business +, +a +$ 599 +increase +from +the +cur +r +ency +translation +adjustments +thereon +and a $ 577 +decrease from currency translation adjustments on the goodwill of the Life Science reporting unit. The decrease of $ 289 +in fiscal +2018 +resulted solely from currency translation adjustments on the goodwill of the Life Science reporting unit. +A summary of Meridian’s acquired intangible assets subject to amortization, as of September 30, 2019 and 2018 is as follows. +2019 +2018 +As of September 30, +Gross +Carrying +Value +Accum. +Amort. +Gross +Carrying +Value +Accum. +Amort. +Manufacturing technologies, core products and cell lines +$ +56,193 +$ +15,096 +$ +22,297 +$ +13,974 +Tradenames, licenses and patents +14,494 +6,094 +8,647 +5,267 +Customer lists, customer relationships and supply agreements +24,274 +14,110 +24,461 +13,051 +Government grants +814 +232 +— +— +$ +95,775 +$ +35,532 +$ +55,405 +$ +32,292 +The actual aggregate amortization expense for these intangible assets for fiscal 2019, 2018 and 2017 was $ 4,531 , $ 3,433 and $ 3,776 , respectively. The estimated aggregate amortization expense for these intangible assets for each of the five succeeding fiscal years is as follows: fiscal 2020 - $ 6,684 , fiscal 2021 - $ 5,490 , fiscal 2022 - $ 5,113 , fiscal 2023 - $ 5,100 and fiscal 2024 - $ 5,096 . +Long-lived assets, excluding goodwill, are reviewed for impairment when events or circumstances indicate that such assets may not be recoverable at their carrying value. Whether an event or circumstance triggers an impairment is determined by comparing an estimate of the asset’s future undiscounted cash flows to its carrying value. If impairment has occurred, it is measured by a fair-value based calculation. +Our ability to recover the carrying value of our intangible assets, both identifiable intangibles and goodwill, is dependent upon the future cash flows of the related acquired businesses and assets. We make judgments and assumptions regarding future cash flows, including sales levels, gross profit margins, operating expense levels, working capital levels, and capital expenditures. With respect to identifiable intangibles and fixed assets, we also make judgments and assumptions regarding useful lives. +- +4 +9 +- +Table of Content s +We consider the following factors in evaluating events and circumstances for possible impairment: (i) significant under-performance relative to historical or projected operating results; (ii) negative industry trends; (iii) sales levels of specific groups of products (related to specific identifiable intangibles); (iv) changes in overall business strategies; and (v) other factors. +If actual cash flows are less favorable than projections, this could trigger impairment of intangible assets and other long-lived assets. If impairment were to occur, this would negatively affect overall results of operations. Aside from the Magellan matter noted above, no triggering events have been identified by the Company for fiscal 2019, 2018 +or +2017. +(i) +Revenue Recognition and Accounts Receivable +- +Adoption of New Standard +On October 1, 2018, we adopted ASU No. +2014-09, +Revenue from Contracts with Customers +, using the modified retrospective transition method applied to those contracts that were not completed as of that date. Results for reporting periods beginning on or after October 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previously applicable guidance. +Upon adoption, we recorded a reduction of $ 116 to the opening balance of retained earnings as of October 1, 2018. This adjustment is related to writing off the book value of clinical diagnostic testing instruments located at customers for which there is no contractual arrangement for the instrument to be returned to the Company. Instruments placed with customers under an agreement to return the instrument to the Company were reclassified to machinery and equipment. Prior to adoption of the new guidance, all instruments placed with customers were capitalized and amortized over an estimated three-year utilization period, with the net balance reflected as deferred instrument costs. +The following table summarizes the impact of the new revenue standard on our opening balance sheet: +Balance at +September 30, +2018 +New +Revenue +Standard +Adjustment +Balance at +October 1, +2018 +PROPERTY, PLANT AND EQUIPMENT +Machinery, equipment and furniture +$ +50,606 +$ +8,696 +$ +59,302 +Accumulated depreciation and amortization +( 55,846 +) +( 7,611 +) +( 63,457 +) +OTHER ASSETS +Deferred instrument costs, net +1,239 +( 1,239 +) +— +NON-CURRENT +LIABILITIES +Deferred income taxes +( 3,769 +) +38 +( 3,731 +) +SHAREHOLDERS’ EQUITY +Retained earnings +( 49,602 +) +116 +( 49,486 +) +The adoption of this new standard had an immaterial impact on our reported total revenues and operating income, as compared to what would have been reported under the prior standard. Our accounting policies under the new standard were applied prospectively and are noted below following the discussion of Revenue Disaggregation. +- +50 +- +Table of Contents +Revenue Disaggregation +The following tables present our revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics only): +Revenue by Reportable Segment & Geographic Region +2019 vs. +2018 +2018 vs. +2017 +2019 +2018 +2017 +Inc (Dec) +Inc (Dec) +Diagnostics- +Americas +$ +110,135 +$ +123,916 +$ +117,161 +( 11 +)% +6 +% +EMEA +23,865 +23,922 +22,594 +— +% +6 +% +ROW +2,682 +2,616 +3,766 +3 +% +( 31 +)% +Total Diagnostics +136,682 +150,454 +143,521 +( 9 +)% +5 +% +Life Science- +Americas +19,443 +21,080 +20,265 +( 8 +)% +4 +% +EMEA +29,157 +24,715 +22,365 +18 +% +11 +% +ROW +15,732 +17,322 +14,620 +( 9 +)% +18 +% +Total Life Science +64,332 +63,117 +57,250 +2 +% +10 +% +Consolidated +$ +201,014 +$ +213,571 +$ +200,771 +( 6 +)% +6 +% +Revenue by Product Platform/Type +2019 vs. +2018 +2018 vs. +2017 +2019 +2018 +2017 +Inc (Dec) +Inc (Dec) +Diagnostics- +Molecular assays +$ +26,231 +$ +33,709 +$ +33,712 +( 22 +)% +— +% +Immunoassays & blood chemistry assays +110,451 +116,745 +109,809 +( 5 +)% +6 +% +Total Diagnostics +$ +136,682 +$ +150,454 +$ +143,521 +( 9 +)% +5 +% +Life Science- +Molecular reagents +$ +23,261 +$ +24,533 +$ +21,966 +( 5 +)% +12 +% +Immunological reagents +41,071 +38,584 +35,284 +6 +% +9 +% +Total Life Science +$ +64,332 +$ +63,117 +$ +57,250 +2 +% +10 +% +Revenue by Disease State (Diagnostics only) +2019 vs. +2018 +2018 vs. +2017 +2019 +2018 +2017 +Inc (Dec) +Inc (Dec) +Diagnostics- +Gastrointestinal assays +$ +68,977 +$ +78,803 +$ +79,022 +( 12 +)% +— +% +Respiratory illness assays +26,622 +28,911 +23,881 +( 8 +)% +21 +% +Blood chemistry assays +19,082 +19,109 +18,212 +— +% +5 +% +Other +22,001 +23,631 +22,406 +( 7 +)% +5 +% +Total Diagnostics +$ +136,682 +$ +150,454 +$ +143,521 +( 9 +)% +5 +% +- +5 +1 +- +Table of Contents +Revenue Policies +Product Sales +Revenue from contracts with customers is recognized in an amount that reflects the consideration we expect to receive in exchange for products when obligations under such contracts are satisfied. Revenue is generally recognized at a +point-in-time +when products are shipped and title has passed to the customer. Such contracts can include various combinations of products that are generally accounted for as distinct performance obligations +. +Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Revenue for the Diagnostics segment is reduced at the date of sale for product price adjustments payable to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals are netted against accounts receivable. +Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation. +Our payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 90 days from the date of shipment or satisfaction of the performance obligation . Trade accounts receivable are recorded in the accompanying Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical +write-off +experience and known conditions that would likely lead to +non-payment. +Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid. +Practical Expedients and Exemptions +Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities. +Our products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable. +We expense as incurred the costs to obtain contracts, as the amortization period would have been one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities. +Reagent Rental Arrangements +Our Revogene, Alethia and LeadCare product platforms require the use of instruments for the tests to be processed. In many cases, a customer is given use of the instrument provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to Meridian. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rentals”. Reagent Rentals may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not within the scope of ASU No. +2014-09 +but rather ASU +2016-02, +Leases +. Accordingly, we first allocate the transaction price between the lease elements and the +non-lease +elements based on estimates of relative standalone selling prices. Lease revenue is derived solely from the sale of consumables and is therefore recognized monthly as earned, which coincides with the transfer of control of the +non-lease +elements. +For the portion of the transaction price allocated to the +non-lease +elements, which are principally the test kits, the related revenue will be recognized at a +point-in-time +when control transfers. +- +5 +2 +- +Table of Contents +Revenue allocated to the lease elements of these Reagent Rental arrangements represent approximately +2 +% +of total revenue and are included as part of net revenues in our Consolidated Statements of Income. +(j) +Fair Value Measurements – +Assets and liabilities are recorded at fair value in accordance with Accounting Standards Codification (“ASC”) +820-10, +Fair Value Measurements and Disclosures +. ASC +820-10 +defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC +820-10 +requires a three level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of the inputs used in the valuation of such items at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). +Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs: +Level 1 +Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities +Level 2 +Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly +Level 3 +Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable +As indicated in Note 2, +we acquired the business of GenePOC in fiscal 2019. The fair value of the acquired accounts receivable and other +current assets and the fair value of the assumed accounts payable and accrued expenses approximated their carrying value at the acquisition date. Inventories, property, plant and equipment, intangible assets and contingent consideration were valued using Level 3 inputs. +The following table provides information by level for financial assets and liabilities that are measured at fair value on a recurring basis, noting that there were no such items as of September 30, 2018: +Fair Value Measurements Using +Inputs Considered as +As of September 31, 2019 +Carrying +Value +Level 1 +Level 2 +Level 3 +Contingent consideration +$ +27,200 +$ +— +$ +— +$ +27,200 +In connection with the acquisition of the business of GenePOC and as set forth in Note 2, the Company is required to make contingent consideration payments of up to $ 70,000 , comprised of $ 20,000 for achievement of product development milestones and up to $ 50,000 for achievement of certain financial targets. The preliminary fair value for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $ 27,200 . The preliminary fair value of the development milestone payments was estimated by discounting the probability-weighted contingent payments to present value. Assumptions used in the calculations were probability of success, duration of the +earn-out +and discount rate. The preliminary fair value of the financial performance target payments was determined using a Monte Carlo simulation-based model. Assumptions used in these calculations were expected revenue, probability of certain developments, expected expenses and discount rate. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. The liability is considered to be a Level 3 financial liability that is +re-measured +each reporting period. +- 5 +3 +- +Table of Contents +(k) +Research and Development Costs +- Research and development costs are charged to expense as incurred. Research and development costs include, among other things, salaries and wages for research scientists, materials and supplies used in the development of new products, costs for development of instrumentation equipment, costs for clinical trials, and costs for facilities and equipment +. +(l) +Income Taxes +- +The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between income for financial reporting and income for tax purposes. We prepare estimates of permanent and temporary differences between income for financial reporting purposes and income for tax purposes. These differences are adjusted to actual upon filing of our tax returns, typically occurring in the third and fourth quarters of the current fiscal year for the preceding fiscal year’s estimates. +We account for uncertain tax positions using a benefit recognition model with a +two-step +approach: (i) a +more-likely-than-not +recognition criterion; and (ii) a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 % likely of being ultimately realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit is recorded. We recognize accrued interest related to unrecognized tax benefits as a portion of our income tax provision in the Consolidated Statements of Operations. See Note 6. +(m) +Stock-Based Compensation +- We recognize compensation expense for all share-based awards made to employees, based upon the fair value of the share-based award on the date of the grant. See Note 7(b). +(n) +Comprehensive Income (Loss) +- Comprehensive income (loss) represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders. As reflected in the accompanying Consolidated Statements of Comprehensive Income, our comprehensive income is comprised of net earnings, foreign currency translation, unrecognized gain on termination of our previous cash flow hedge, and the income taxes thereon. +(o) +Shipping and Handling Costs +- Shipping and handling costs invoiced to customers are included in net revenues. Costs to distribute products to customers, including freight costs, warehousing costs, and other shipping and handling activities are included in cost of sales. +(p) +Non-Income Government-Assessed Taxes +- We classify all non-income, government-assessed taxes (sales, use and value-added) collected from customers and remitted by us to appropriate revenue authorities, on a net basis (excluded from net revenues) in the accompanying Consolidated Statements of Operations. +(q) +Recent Accounting Pronouncements +– +Pronouncements Adopted +As described in Note 1(i) above, the Company adopted ASU No. +2014-09, +Revenue from Contracts with Customers +, on October 1, 2018 using the modified retrospective transition method. +In August 2016, the FASB issued ASU +2016-15, +Classification of Certain Cash Receipts and Cash Payments +. The update addresses certain specific cash flows and their treatment, with the objective being to reduce the existing diversity in how the items are presented and classified within the statement of cash flows. The Company adopted this guidance in the first quarter of fiscal 2019, with the Condensed Consolidated Statements of Cash Flows reflecting such adoption, including the information related to restricted cash. +In January 2017, the FASB issued ASU +2017-01, +Clarifying the Definition of a Business +. Included within the standard is guidance designed to improve consistency in accounting for acquisition and disposition transactions. Specifically, the guidance sets forth a +two-step +process of determining if a “business” or an “asset” has, in fact, been acquired or disposed of. Adoption and implementation of this guidance was effective for the Company at the beginning of fiscal 2019, with the guidance being adhered to in accounting for the acquisition of the GenePOC business in June 2019. See Note 2 below. +- +5 +4 +- +Table of Contents +In February 2018, the FASB issued ASU +2018-02, +Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income +, to address certain of the recent U.S. federal income tax legislation’s impact on Accumulated Other Comprehensive Income (“AOCI”). The guidance specifically provides the option of reclassifying “stranded tax effects” related to the tax legislation from AOCI to retained earnings. The Company elected to adopt this guidance in the third quarter of fiscal 2019. An election was made to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings, and an entry was made to increase AOCI and decrease retained earnings by $ 148 . The Company’s accounting policy is to release the income tax effects in other comprehensive income as financial amounts are removed. +Pronouncements Issued but Not Yet Adopted as of September 30, 2019 +In February 2016, the FASB issued ASU +2016-02, +Leases +, which amends the accounting guidance related to leases. These changes, which are designed to increase transparency and comparability among organizations for both lessees and lessors, include, among other things, requiring recognition of lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Adoption and implementation of the guidance is not required by the Company until the beginning of fiscal 2020, although early adoption is permitted. The Company adopted ASU +2016-02 +effective October 1, 2019 using the modified retrospective method, which was applied to leases that existed or will be entered into on or after such date. The Company anticipates that as a result of such adoption, it will record to its balance sheet approximately $ 6,000 of +right-of-use +assets and lease liabilities as of October 1, 2019 +. +(r) +Reclassifications +- Certain reclassifications have been made to the prior fiscal year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity. +(2) +Acquisition of Business of GenePOC +On June 3, 2019, we acquired the business of GenePOC Inc. (“GenePOC”), a Quebec City, Quebec Province, Canada based provider of molecular diagnostic instruments and assays. The purchase agreement contemplates a maximum total consideration of up to $ +120,000 +, which based upon the current preliminary valuation is estimated at a total fair value of approximately $ +77,526 +. Pursuant to the purchase agreement, the maximum consideration is comprised of the following (noting that the current preliminary valuation values the contingent consideration identified in (ii) and (iii) below at an aggregate amount of approximately $ +27,200 +): +(i) +a $ 50,000 cash payment on June 3, 2019, subject to a working capital adjustment and a holdback of $ 5,000 to secure selling party’s performance of certain post-closing obligations; +(ii) +two $ 10,000 installments contingent upon the achievement of certain product development milestones if achieved by September 30, 2020 and March 31, 2021 , respectively; and +(iii) +up to $ 50,000 of contingent consideration payable if certain financial performance targets are achieved during the twelve-month period ending September 30, 2022. +The total of the holdback identified in (i) above and the currently estimated value of the contingent consideration identified in (ii) and (iii) above are reflected as acquisition consideration within the +non-current +liabilities section of the accompanying Condensed Consolidated Balance Sheets. The holdback amounts are due to be settled in December 2020, following the +18-month +anniversary of the transaction. +We utilized +cash and equivalents on hand and proceeds drawn from our new $ 125,000 revolving credit facility, which replaced our previous credit facility +, to finance the acquisition. +Proceeds from the new credit facility were also utilized to repay and settle the outstanding principal and interest due on our term loan (see Note +5 +). As a result of currently estimated total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $ 34,582 was recorded in connection with this acquisition, which +will +be deductible for +U. +S +. +tax purposes ratably over 15 years. The goodwill results largely from Meridian’s ability to market and sell GenePOC’s technology and instrument platform through its established customer base and distribution channels. +- +5 +5 +- +Table of Contents +Our Consolidated Statement of Operations for the year ended September 30, 2019 includes $ 1,808 of acquisition-related costs related to the acquisition of the GenePOC business, which are reflected as +operating expenses. +Most of these costs relate to professional fees for attorneys, tax advisors and regulatory advisors during due diligence, and the preparation and negotiation of acquisition agreements. +The Company’s fiscal 2019 +consolidated results +include $ 341 of net revenues and $ 3,848 of net loss from the GenePOC business since the date of acquisition. These results, which are reported as part of the Diagnostics segment, include $ 1,204 of amortization of specific identifiable assets recorded in the opening balance sheet, including a license agreement, technology and a government grant. +Preliminary Purchase Price Allocation +The recognized preliminary amounts of identifiable assets acquired and liabilities assumed in the acquisition of the GenePOC business are as follows: +PRELIMINARY +June 3, +2019 +(as initially +reported) +Measurement +Period +Adjustments +June 3, +2019 +(as adjusted) +Fair value of assets acquired - +Accounts receivable +$ +58 +$ +( 1 +) +$ +57 +Inventories +1,617 +( 106 +) +1,511 +Other current assets +77 +7 +84 +Property, plant and equipment +1,520 +( 96 +) +1,424 +Goodwill +34,482 +100 +34,582 +Other intangible assets (estimated useful life): +License agreement ( 10 years) +5,990 +— +5,990 +Technology ( 15 years) +34,040 +96 +34,136 +Government grant ( 1.33 years) +800 +— +800 +78,584 +— +78,584 +Fair value of liabilities assumed - +Accounts payable and accrued expenses +1,082 +( 24 +) +1,058 +Total consideration paid (including contingent consideration currently estimated at $ 27,200 ) +$ +77,502 +$ +24 +$ +77,526 +The allocation of the purchase price and estimated useful lives of property, plant and equipment, and intangible assets shown above remain preliminary and subject to adjustment, pending refinement and final completion of valuations, including but not limited to valuations of accounts receivable, inventory, other current assets, property, plant and equipment, and intangibles. Any modifications to the valuation of assets acquired and liabilities assumed will result in an adjustment to goodwill. +Pro Forma Information (Unaudited) +The following table provides the unaudited consolidated pro forma results for the periods presented as if the business of GenePOC had been acquired as of the beginning of fiscal 2018. Pro forma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future. +Year Ended September 30, +2019 +2018 +Net Revenues +$ +201,222 +$ +213,753 +Net Earnings +$ +16,093 +$ +9,407 +- +5 +6 +- +Table of Contents +These pro forma amounts have been calculated by including the results of GenePOC, and adjusting the combined results to give effect to the following, as if the acquisition had been consummated on October 1, 201 +7 +, together with the consequential tax effects thereon: +Year Ended September 30, +2019 +2018 +Adjustments to Net Revenues +GenePOC +pre-acquisition +revenues +$ +208 +$ +182 +Adjustments to Net Earnings +GenePOC +pre-acquisition +net loss +$ +( 9,578 +) +$ +( 12,775 +) +Pro forma adjustments: +Meridian acquisition-related costs +1,808 +— +GenePOC transaction-related costs +1,245 +— +Expenses related to +non-continuing +personnel, locations +or activities +1,576 +2,552 +Incremental depreciation and amortization +( 2,344 +) +( 3,499 +) +Incremental interest costs +( 743 +) +( 977 +) +Tax effects of pro forma adjustments +( 253 +) +257 +Total Adjustments to Net Earnings +$ +( 8,289 +) +$ +( 14,442 +) +Supplemental Cash Flow Information (Non-Cash Acquisition Consideration) +As noted above, +non-cash +acquisition consideration totaled $ 32,200 as of September 30, 2019, which is comprised of: (i) $ 5,000 of purchase price holdback; and (ii) $ 27,200 contingent upon achievement of established milestones. No such items existed in fiscal 2018 or 2017. +(3) +Restructuring +During the second quarter of fiscal 2018, the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and Life Science, supported by a global corporate team. As part of this plan, certain functions and locations within both business units have been streamlined, including: (i) the elimination of certain executive management and commercial sales positions; (ii) the closing of Life Science locations in Taunton, Massachusetts and Singapore, the operations of which were transferred to +our existing +locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio. +Further restructuring costs were incurred in fiscal 2019, as refinements to each business unit’s cost structure continued to be made and the Company’s previous CFO terminated employment. +As a result of these activities, restructuring costs totaling $ 2,839 and $ 6,332 were recorded during fiscal 2019 and fiscal 2018, respectively, the details of which are as follows: +2019 +2018 +Severance, other termination benefits and related costs +$ +2,046 +$ +5,012 +Lease and other contract termination fees +54 +353 +Loss on fixed asset disposals and inventory scrap +528 +225 +Other +211 +742 +Total +$ +2,839 +$ +6,332 +The above table does not include $ 2,374 of CEO transition costs incurred in fiscal 2018, which primarily represents the compensation and benefits for our previous Executive Chairman and CEO, Mr. John A. Kraeutler, throughout fiscal 2018, the period during which we also have the compensation and benefits our +current +CEO, Mr. Jack Kenny, who began employment at the beginning of fiscal 2018. These CEO transition costs and the restructuring costs set forth in the table above comprise the $ 8,706 of restructuring costs set forth in the accompanying Consolidated Statement of Operations for fiscal 2018. +- +5 +7 +- +Table of Contents +Accrued liabilities associated with the restructuring costs noted above are comprised of the following: +As of September 30, +2019 +2018 +Severance, other termination benefits and related costs +$ +1,010 +$ +987 +Lease and other contract termination fees +12 +33 +Other +114 +6 +Total +$ +1,136 +$ +1,026 +(4) +Inventories +Inventories are comprised of the following: +As of September 30, +2019 +2018 +Raw materials +$ +7,455 +$ +6,689 +Work-in-process +11,504 +12,098 +Finished goods - instruments +935 +1,191 +Finished goods - kits and reagents +19,723 +22,015 +Total +$ +39,617 +$ +41,993 +(5) +Bank Credit Arrangements +In anticipation of the acquisition of the business of GenePOC (see Note 2), on May 24, 2019 the Company entered into a credit facility agreement with a commercial bank. The credit facility, which expires in May 2024 , makes available to the Company a revolving credit facility in an aggregate principal amount not to exceed $ 125,000 , with outstanding principal amounts bearing interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR +, resulting in an effective interest rate of 3.78 % on the credit facility in fiscal 2019. +As of September 30, 2019, two draws have been made on the credit facility, resulting in an outstanding principal balance of $ 75,824 . The proceeds from these draws were used to: (i) repay and settle the outstanding principal and interest due on our previously-existing $ 60,000 five-year term loan, which had an outstanding balance of $ 50,180 as of September 30, 2018; and (ii) along with cash +on-hand, +fund the GenePOC acquisition closing payment. In light of the recent execution date of the credit facility and interest being determined on a variable rate basis, the fair value of the borrowings under the credit facility at September 30, 2019 approximates the current carrying value reflected in the accompanying Consolidated Balance Sheet, as was also the case with the outstanding term loan balance as of September 30, 2018. +The revolving credit facility is collateralized by the business assets of the Company’s U.S. subsidiaries and requires compliance with financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the credit facility agreement. As of September 30, 2019, the Company is in compliance with all covenants. +In connection with the term loan repayment, the Company also settled the interest rate swap that had been entered into to limit exposure to volatility in the term loan’s LIBOR interest rate +and which effectively converted the variable interest rate on the term loan to a fixed rate of 2.76 %. +At the time of settlement, the Company received a cash payment in an amount equal to the $ 563 then-current fair value of the interest rate swap. Accordingly, there is no balance for the interest rate swap reflected within the accompanying Consolidated Balance Sheet as of September 30, 2019. At September 30, 2018, there was an asset balance of $ 1,722 related to the interest rate swap. The corresponding fair value amount reflected within a separate component of other comprehensive income in the accompanying Consolidated Statements of Comprehensive Income, as a result of the interest rate swap having been designated as an effective cash flow hedge, is being released ratably into income through March 31, 2021, the interest rate swap’s original term. The interest rate swap balance reflected within +accumulated +other comprehensive income at September 30, 2019 and September 30, 2018 totaled $ 461 and $ 1,722 , respectively +. +- 58 - +Table of Contents +Supplemental Cash Flow Information (Interest Paid) +Cash paid for interest totaled $ 1,405 , $ 1,487 and $ 1,605 in fiscal 2019, 2018 and 2017, respectively. +(6) +Income Taxes +(a) +Earnings before income taxes, and the related provision for income taxes for the years ended September 30, 2019, 2018 and 2017 were as follows: +Year Ended September 30, +2019 +2018 +2017 +Domestic +$ +23,954 +$ +27,787 +$ +31,885 +Foreign +7,603 +2,593 +4,544 +Total earnings before income taxes +$ +31,557 +$ +30,380 +$ +36,429 +Provision (credit) for income taxes - +Federal - +Current +$ +5,001 +$ +6,030 +$ +11,262 +Temporary differences +Fixed asset basis differences and depreciation +288 +410 +( 181 +) +Intangible asset basis differences and amortization +( 797 +) +( 4,052 +) +( 1,158 +) +Currently +non-deductible +expenses and reserves +241 +1,206 +884 +Stock-based compensation +( 109 +) +1,379 +( 635 +) +Net operating loss carryforwards utilized +69 +61 +1,831 +Tax credit carryforwards utilized +— +181 +67 +Other, net +( 169 +) +( 148 +) +99 +Subtotal +4,524 +5,067 +12,169 +State and local +834 +1,066 +1,900 +Foreign +1,817 +398 +803 +Total income tax provision +$ +7,175 +$ +6,531 +$ +14,872 +(b) +The following is a reconciliation between the statutory U.S. income tax rate and the effective rate derived by dividing the provision for income taxes by earnings before income taxes: +Year Ended September 30, +2019 +2018 +2017 +Computed income taxes at statutory rate +$ +6,627 +21.0 +% +$ +7,443 +24.5 +% +$ +12,750 +35.0 +% +Increase (decrease) in taxes resulting from - +State and local income taxes +577 +1.8 +982 +3.2 +1,093 +3.0 +U.S. tax law change +— +— +( 2,655 +) +( 8.7 +) +— +— +One-time +repatriation tax +— +— +876 +2.9 +— +— +Foreign-Derived Intangible Income tax +( 294 +) +( 0.9 +) +— +— +— +— +Global Intangible Low Taxed Income tax +1,119 +3.6 +— +— +— +— +Foreign tax credit +( 990 +) +( 3.1 +) +( 15 +) +— +( 57 +) +( 0.2 +) +Foreign tax rate differences +46 +0.1 +( 104 +) +( 0.3 +) +( 281 +) +( 0.8 +) +Qualified domestic production incentives +— +— +( 550 +) +( 1.8 +) +( 1,012 +) +( 2.8 +) +Uncertain tax position activity +126 +0.4 +( 62 +) +( 0.2 +) +134 +0.4 +Goodwill impairment charge +— +— +— +— +2,320 +6.4 +Valuation allowance +106 +0.3 +( 40 +) +( 0.1 +) +— +— +Stock-based compensation +( 33 +) +( 0.1 +) +447 +1.4 +— +— +Other, net +( 109 +) +( 0.4 +) +209 +0.6 +( 75 +) +( 0.2 +) +$ +7,175 +22.7 +% +$ +6,531 +21.5 +% +$ +14,872 +40.8 +% +- +5 +9 +- +Table of Contents +On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “tax reform act”) and the following effects of the tax reform act are reflected within the consolidated financial statements for the year ended September 30, 2018: (i) a tax benefit of $ 2,655 , primarily from the +re-measurement +of deferred tax assets and liabilities; and (ii) $ 876 of tax expense for the mandatory U.S. repatriation transition tax. The +re-measurement +of deferred tax assets and liabilities reflect +ed +the realization of temporary differences during fiscal 2018 at a transitional blended federal rate of 24.5 %, with the remaining temporary differences being +re-measured +at the 21 % federal rate. +The tax reform act includes the Global Intangible Low Taxed Income tax (“GILTI”), which requires the Company to include in U.S. income certain foreign earnings that do not exceed a 10 % return on foreign investment. For the year ended September 30, 2019, the Company’s U.S. GILTI inclusion was $ 5,328 , resulting in a permanent tax expense and a foreign tax credit benefit of $ 1,119 and $ 990 , respectively. The Company has elected to take the GILTI into account in the year it occurs. +(c) +The components of net deferred tax liabilities were as follows: +As of September 30, +2019 +2018 +Deferred tax assets - +Valuation reserves and +non-deductible +expenses +$ +1,253 +$ +1,473 +Stock compensation expense not deductible +2,158 +2,033 +Net operating loss and tax credit carryforwards +494 +433 +Basis difference in equity-method investee +302 +302 +Inventory basis differences +289 +383 +Other +125 +( 530 +) +Subtotal +4,621 +4,094 +Less valuation allowance +( 408 +) +( 302 +) +Deferred tax assets +4,213 +3,792 +Deferred tax liabilities - +Fixed asset basis differences and depreciation +( 2,205 +) +( 1,913 +) +Intangible asset basis differences and amortization +( 4,374 +) +( 5,518 +) +Deferred tax liabilities +( 6,579 +) +( 7,431 +) +Net deferred tax liabilities +$ +( 2,366 +) +$ +( 3,639 +) +For income tax purposes, we have recorded deferred tax assets related to operating loss and tax credit carryforwards in both U.S. and foreign jurisdictions totaling $ 231 and $ 263 , respectively, as of September 30, 2019. At September 30, 2018, such deferred tax assets totaled $ 303 and $ 130 , respectively. The operating loss carryforwards in +Canada expire in 2039 , with such carryforwards in the other +foreign jurisdictions hav +ing +no expiration date. The operating loss carryforwards in the U.S. expire +in +2023 at the federal level, and +in +2036 at the state level. The aggregate amount of federal, state and foreign operating loss carryforwards totaled $ 366 , $ 2,443 and $ 914 , respectively, at September 30, 2019. The use of the federal and state losses is limited by the change of ownership provisions of the Internal Revenue Code +. +The realization of deferred tax assets is dependent upon the generation of future taxable income in the applicable jurisdictions. We have considered the levels of currently anticipated +pre-tax +income in U.S. and foreign jurisdictions in assessing the required level of the deferred tax asset valuation allowance including the characterization of the income as ordinary or capital. Taking into consideration historical and current operating results, and other factors, we believe that it is more likely than not that the net deferred tax asset of $ 4,213 will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in future years if estimates of future taxable income are reduced +. +- 60 - +Table of Contents +We utilize a comprehensive model for the recognition, measurement, presentation and disclosure of uncertain tax positions, assuming full knowledge of all relevant facts by the applicable tax authorities. The total amount of unrecognized tax benefits at September 30 +, 2019 +and September 30 +, 2018 +related to such positions was $ 383 and $ 262 , respectively, of which $ 309 would favorably impact the effective tax rate if recognized. We generally recognize interest and penalties related to uncertain tax positions as a component of our income tax provision. During fiscal 2019 +and 2018 +, such penalties and interest totaled approximately $ 34 and $ 84 , respectively. We had approximately $ 128 accrued for the payment of interest and penalties at September 30 +, 2019 +compared to $ 162 accrued at September 30 +, 2018 +. The amount of our liability for uncertain tax positions expected to be paid or settled in the next 12 +months is uncertain. +A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: +2019 +2018 +Unrecognized income tax benefits +at +beginning of year +$ +262 +$ +517 +Additions for tax positions of prior years +83 +— +Reductions for tax positions of prior years +( 100 +) +— +Additions for tax positions of current year +138 +— +Tax examination and other settlements +— +( 161 +) +Expiration of statute of limitations +— +( 94 +) +Unrecognized income tax benefits at end of year +$ +383 +$ +262 +We are subject to examination by the tax authorities in the U.S. (both federal and state) and the countries of Australia, +Belgium, Canada, China, England, France, Germany, Holland and Italy. In the U.S., open tax years are fiscal +2016, fiscal 2017 and fiscal 2018 . In countries outside the U.S., open tax years generally range from fiscal 2014 and forward . However, in +Australia and Belgium, the utilization +of local net operating loss carryforwards extends the statute of limitations for examination well into the foreseeable future. To the extent that adjustments result from the completion of these examinations or the lapsing of statutes of limitation, they will affect tax liabilities in the period known. We believe that the results of any tax authority examinations would not have a significant adverse impact on our financial condition or results of operations. +Supplemental Cash Flow Information (Income Taxes Paid) +Cash paid for income taxes totaled $ 7,840 , $ 6,555 and $ 12,613 in fiscal 2019, 2018 and 2017, respectively +. +(7) +Employee Benefits +(a) +Savings and Investment Plan +- We have a profit sharing and retirement savings plan covering substantially all full-time U.S. employees. Profit sharing contributions to the plan, which are discretionary, are approved by the board of directors. The plan permits participants to contribute to the plan through salary reduction. Under terms of the plan, we match 100 % of an employee’s contributions, up to a maximum match of 4 % of eligible compensation ( 3 % through December 31, 2016). Our discretionary and matching contributions to the plan amounted to approximately $ 1,979 , $ 2,118 and $ 1,912 , during fiscal 2019, 2018 and 2017, respectively. +(b) +Stock-Based Compensation Plans +- During fiscal 2019, we had two active stock-based compensation plans, the 2004 Equity Compensation Plan, which became effective December 7, 2004, as amended (the “2004 Plan”) and the 2012 Stock Incentive Plan, which became effective January 25, 2012 (the “2012 Plan”). +Each of the 2004 Plan and 2012 Plan authorized the granting of new shares for options, restricted shares or restricted share units for up to 3,000 shares, with the +non-granted +portion of the 2004 Plan permitted to be carried forward and added to the 2012 Plan authorized limit. As of September 30, 2019, we have granted 1,292 and 2,051 shares under the 2004 Plan and 2012 Plan, respectively, thereby resulting in a remaining authorized limit of 2,657 shares. Options may be granted at exercise prices not less than 100 % of the closing market value of the underlying common shares on the date of grant and have maximum terms up to ten years . Vesting schedules for options, restricted shares and restricted share units are established at the time of grant and may be set based on future service periods, achievement of performance targets or a combination thereof. All options contain provisions restricting their transferability and limiting their exercise in the event of termination of employment or the disability or death of the optionee. We recognize compensation expense for all share-based payments made to employees, based upon the fair value of the share-based payment on the date of the grant. +- +6 +1 +- +Table of Contents +During fiscal years 2017 through 2019, we granted, in the aggregate for the three-year period, approximately 1,100 restricted share units (with weighted-average grant date fair values of $ 16.93 per share in fiscal 2017, $ 14.65 per share in fiscal 2018 and $ 18.66 +per share in fiscal 2019) to certain employees. The units granted in fiscal 2019 were generally time-vested restricted share units vesting in total on the third anniversary of the grant date. During fiscal 2018 and 2017, generally half of each employee’s grant was time-vested restricted share units vesting in total on the fourth anniversary of the grant date, with the remaining half being subject to attainment of a specified earnings target for each fiscal period. While dividend equivalents were paid on these units throughout each fiscal period, the targets for each fiscal period were not met and the performance-based portion of these restricted share units granted have been cancelled. +During fiscal 2017 in connection with his Amended and Restated Employment Agreement, we also granted to our former Chairman and CEO +at that time, Mr. John A. Kraeutler, 25 restricted share units (with a grant date fair value of $ 19.09 per share), with each respective grant to be earned only if specified revenue and earnings per share targets were achieved for fiscal 2017. As a result of the performance targets not being achieved, these restricted share units have been cancelled +. +Additionally, during fiscal 2018 in connection with the October 9, 2017 employment of the Company’s current CEO +, Mr. Jack Kenny, we granted to Mr. Kenny: (i) options to purchase 100 shares of common stock of the Company (with a grant date fair value of $ 3.19 per share) vesting on a pro rata basis over four years ; and (ii) 13 restricted share units (with a grant date fair value of $ 14.50 per share) vesting 100 % on the second anniversary of the grant. Also during fiscal 2018 in connection with his Amended and Restated Employment Agreement, we granted to our +former Chairman and CEO +at that time, Mr. John A. Kraeutler, 25 restricted share units (with a grant date fair value of $ 15.30 per share) to be earned only if specified revenue and earnings per share targets were achieved for fiscal 2018. As a result of the fiscal 2018 performance targets related to this grant being achieved, these restricted share units were fully vested and the related shares were paid to Mr. Kraeutler in November 2018. +Giving effect to these grants, cancellations and certain other activities for restricted shares and restricted share units throughout the years, including conversions to common shares, forfeitures, and new hire and employee promotion grants, approximately 432 restricted share units remain outstanding as of September 30, 2019, with a weighted-average grant date fair value of $ 17.17 per share, a weighted-average remaining vesting period of 1.53 years and an aggregate intrinsic value of $ 4,096 . The weighted-average grant date fair value of the approximate 285 restricted share units that vested during fiscal 2019 was $ 17.34 per share. +The amount of stock-based compensation expense reported was $ 3,251 , $ 3,402 and $ 3,381 in fiscal 2019, 2018 and 2017, respectively. The fiscal 2019 expense is comprised of $ 542 related to stock options and $ 2,709 related to restricted share units; the fiscal 2018 expense is comprised of $ 793 related to stock options and $ 2,609 related to restricted share units; and the fiscal 2017 expense is comprised of $ 662 related to stock options and $ 2,719 related to restricted share units. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $ 572 , $ 303 and $ 861 , for fiscal 2019, 2018 and 2017, respectively. As of September 30, 2019, we expect future stock compensation expense for unvested options and unvested restricted share units to total $ 240 and $ 2,756 , respectively, which will be recognized during fiscal years 2020 through 2023 . +We recognize compensation expense only for the portion of shares that we expect to vest. As such, we apply estimated forfeiture rates to our compensation expense calculations. These rates have been derived using historical forfeiture data, stratified by several employee groups. During fiscal 2019, 2018 and 2017, we recorded $ 127 , $ 106 and $ 106 , respectively, in stock compensation expense to adjust estimated forfeiture rates to actual, noting that total fiscal 2019 stock compensation expense reflects the effect of terminations made in connection with the restructuring activities discussed in Note 3. +We have elected to use the Black-Scholes option pricing model to determine grant-date fair value for stock options, with the following assumptions: (i) expected share price volatility based on the average of Meridian’s historical volatility over the options’ expected lives and implied volatility based on the value of tradable call options; (ii) expected life of options based on contractual lives, employees’ historical exercise behavior and employees’ historical post-vesting employment termination behavior; (iii) risk-free interest rates based on treasury rates that correspond to the expected lives of the options; and (iv) dividend yield based on the expected yield on underlying Meridian common stock. +- 6 +2 +- +Table of Contents +Year ended September 30, +2019 +2018 +2017 +Risk-free interest rates +2.99 +% +2.10 +% +1.34 +% +Dividend yield +3.3 +% +3.3 +% +4.1 +% +Life of option +6.51 yrs. +6.47 yrs. +6.44 yrs. +Share price volatility +29 +% +30 +% +27 +% +Forfeitures (by employee group) +0 %- 16 +% +0 %- 16 +% +0 %- 19 +% +A summary of the status of our stock option plans as of September 30, 201 +9 +, and changes during the year ended September 30, 2019, is presented in the table and narrative below: +Options +Wtd Avg +Exercise +Price +Wtd Avg +Remaining +Life (Yrs) +Aggregate +Intrinsic +Value +Outstanding beginning of period +1,095 +$ +17.56 +Grants +77 +16.07 +Exercises +( 30 +) +15.13 +Forfeitures +( 52 +) +15.03 +Cancellations +( 100 +) +20.48 +Outstanding end of period +990 +$ +17.36 +6.37 +$ +1 +Exercisable end of period +782 +$ +17.99 +5.86 +$ +— +A summary of the status of our nonvested options as of September 30, 2019, and changes during the year ended September 30, 201 +9 +, is presented below: +Options +Weighted- +Average +Grant Date +Fair Value +Nonvested beginning of period +389 +$ +3.24 +Granted +77 +3.61 +Vested +( 205 +) +3.39 +Forfeitures +( 52 +) +3.25 +Nonvested end of period +209 +$ +3.24 +The weighted average grant-date fair value of options granted was $ 3.61 , $ 3.27 and $ 2.65 for fiscal 2019, 2018 and 2017, respectively. The total intrinsic value of options exercised was $ 62 , $ 2 and $ 9 for fiscal 2019, 2018 and 2017, respectively. The total grant-date fair value of options that vested during fiscal 2019, 2018 and 2017 was $ 735 , $ 580 and $ 494 , respectively. +Cash received from options exercised was $ 443 , $ 183 and $ 302 for fiscal 2019, 2018 and 2017, respectively. Tax expense recorded to additional +paid-in +capital from option exercises totaled $ 0 , $ 0 +and $ +431 +for fiscal +2019 +, +2018 +and +2017 +, respectively. +In connection with Mr. Kenny’s October 1, 2019 Amended and Restated Employment Agreement, in November 2019 we granted Mr. Kenny: (i) options to purchase 198 shares of common stock of the Company vesting on a pro rata basis over the three years ending October 1, 2022 ; and (ii) 99 restricted share units vesting 100 % on October 1, 2022. +- +6 +3 +- +Table of Contents +(8) +Non-Current Liabilities +The Company has provided certain post-employment benefits to its former CEO, and these obligations total $ 1,917 and $ 1,864 at September 30, 2019 and 2018, respectively. In addition, we are required by the governments of certain foreign countries in which we operate to maintain a level of reserves for potential future severance indemnity. These reserves total $ 702 and $ 713 at September 30, 2019 and 2018, respectively. +(9) +Reportable Segments and Major Concentration Data +Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio and Quebec City, Canada, manufacturing operations for products detecting elevated lead levels in blood in Billerica, Massachusetts (near Boston), and the sale and distribution of diagnostics products domestically and abroad. The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, +and bioresearch reagents domestically and abroad, including a sales and business development facility in Beijing, China to further pursue growing revenue opportunities in Asia +. +Revenues from individual customers constituting +10 +% or more of consolidated net revenues are as follows: +Year Ended September 30, +2019 +2018 +2017 +Customer A +$ +18,096 +( 9 +)% +$ +21,162 +( 10 +)% +$ +22,397 +( 11 +)% +Customer B +$ +17,350 +( 9 +)% +$ +22,490 +( 11 +)% +$ +17,825 +( 9 +)% +Accounts receivable from these two Diagnostics customers accounted for 13 % and 12 % of consolidated accounts receivable at September 30, 2019 and September 30, 2018, respectively. The Company’s international revenues totaled approximately $ 76,430 , $ 72,548 and $ 66,682 in fiscal 2019, 2018 and 2017, respectively, and our three major product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 57 %, 59 % and 60 % of consolidated net revenues in fiscal 2019, 2018 and 2017, respectively. We currently purchase on a sole-source basis from a U.S. manufacturer the instruments on which our Alethia molecular testing platform operates. Additionally, two of our foodborne products sourced from another vendor accounted for 9 %, 9 % and 10 % of third-party revenues for our Diagnostics segment in fiscal 2019, 2018 and 2017, respectively. +Significant revenue information by country for the Diagnostics and Life Science segments is as follows. Revenues are attributed to the geographic area based on the location to which the product is delivered. +Year Ended September 30, +2019 +2018 +2017 +United States +$ +105,648 +$ +120,555 +$ +114,494 +Italy +10,898 +10,398 +9,004 +France +2,442 +2,353 +1,845 +United Kingdom +2,397 +2,340 +1,778 +Puerto Rico +2,276 +1,054 +730 +Japan +1,571 +1,307 +2,421 +Belgium +1,465 +1,711 +1,507 +Holland +1,411 +1,454 +1,290 +Other countries +8,574 +9,282 +10,452 +Total Diagnostics +$ +136,682 +$ +150,454 +$ +143,521 +- +6 +4 +- +Table of Contents +Year Ended September 30, +2019 +2018 +2017 +United States +$ +18,936 +$ +20,468 +$ +19,595 +Germany +12,664 +8,108 +7,406 +China +8,460 +8,347 +5,898 +United Kingdom +4,714 +5,201 +5,579 +Spain +4,415 +4,187 +3,209 +Australia +3,461 +3,631 +4,002 +France +2,200 +2,040 +1,792 +Japan +1,624 +1,932 +1,375 +Italy +1,357 +971 +700 +South Korea +1,134 +2,044 +2,308 +Other countries +5,367 +6,188 +5,386 +Total Life Science +$ +64,332 +$ +63,117 +$ +57,250 +In locations outside the U.S., the Company’s identifiable assets were concentrated as follows at the end of most recent fiscal years: +As of September 30, 2019 +: U.K – $ 22,963 +; Germany – $ +7,141 +; Italy – $ +7,557 +; and Australia – $ +1,392 +As of September 30, 2018 +: U.K – $ 14,816 ; Germany – $ 7,706 ; Italy – $ 7,334 ; and Australia – $ 3,543 +Segment information for the interim periods is as follows: +Diagnostics +Life Science +Corporate +(1) +Eliminations +(2) +Total +Fiscal 2019 +Net revenues - +Third-party +$ +136,682 +$ +64,332 +$ +— +$ +— +$ +201,014 +Inter-segment +462 +361 +— +( 823 +) +— +Operating income +22,399 +20,572 +( 10,373 +) +101 +32,699 +Depreciation and amortization +7,676 +2,288 +— +— +9,964 +Capital expenditures +2,049 +1,748 +— +— +3,797 +Goodwill +70,395 +18,846 +— +— +89,241 +Other intangible assets, net +59,807 +436 +— +— +60,243 +Total assets +255,169 +70,392 +— +( 83 +) +325,478 +Fiscal 2018 +Net revenues - +Third-party +$ +150,454 +$ +63,117 +$ +— +$ +— +$ +213,571 +Inter-segment +392 +397 +— +( 789 +) +— +Operating income +32,569 +13,799 +( 15,076 +) +292 +31,584 +Depreciation and amortization +6,557 +2,131 +— +— +8,688 +Capital expenditures +2,477 +1,724 +— +— +4,201 +Goodwill +35,213 +19,424 +— +— +54,637 +Other intangible assets, net +22,068 +1,045 +— +— +23,113 +Total assets +180,978 +70,341 +— +58 +251,377 +- +6 +5 +- +Table of Contents +Fiscal 2017 +Net revenues - +Third-party +$ +143,521 +$ +57,250 +$ +— +$ +— +$ +200,771 +Inter-segment +389 +537 +— +( 926 +) +— +Operating income +34,124 +14,086 +( 11,097 +) +269 +37,382 +Depreciation and amortization +7,037 +2,053 +— +— +9,090 +Capital expenditures +2,554 +1,913 +— +— +4,467 +Goodwill +35,213 +19,713 +— +— +54,926 +Other intangible assets, net +24,973 +1,731 +— +— +26,704 +Total assets +180,226 +69,938 +— +( 387 +) +249,777 +(1) +Includes Restructuring and Selected Legal +Costs of $ 2,596 , $ 7,779 and $ 762 in fiscal years 2019, 2018 and 2017, respectively. +(2) +Eliminations consist of inter-segment transactions. +A reconciliation of segment operating +income +to consolidated earnings before income taxes for the years ended September 30, 2019, 2018 and 2017 is as follows: +Year Ended September 30, +2019 +2018 +2017 +Segment operating income +$ +43,072 +$ +46,660 +$ +48,479 +Corporate expenses +( 10,373 +) +( 15,076 +) +( 11,097 +) +Interest income +681 +418 +171 +Interest expense +( 1,945 +) +( 1,520 +) +( 1,642 +) +Other, net +122 +( 102 +) +518 +Consolidated earnings before income taxes +$ +31,557 +$ +30,380 +$ +36,429 +Transactions between segments are accounted for at established intercompany prices for internal and management purposes with all intercompany amounts eliminated in consolidation. +(10) +Commitments and Contingencies +(a) +Royalty Commitments - +We have entered into various license agreements that require payment of royalties based on a specified percentage of the sales of licensed products. Approximately 84 % of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from 3 % to 8 %. These royalty expenses are recognized on an +as-earned +basis and recorded in the year earned as a component of cost of sales. Annual royalty expenses associated with these agreements were approximately $ 2,107 , $ 2,579 and $ 2,600 for the fiscal years ended September 30, 2019, 2018 and 2017, respectively. +(b) +Purchase Commitments +- +Excluding the operating lease commitments reflected in Note 10(c) below, we have purchase commitments primarily for inventory and service items as part of the normal course of business. Commitments made under these obligations are $ 14,203 for fiscal 2020 and $ 792 for fiscal 2021 through fiscal 202 +3 +. No purchase commitments have been made beyond fiscal 202 +3 +. +(c) +Operating Lease Commitments +- +Meridian and its subsidiaries are parties to a number of operating lease agreements around the world, the majority of which relate to office and warehouse building leases expiring at various dates. Amounts charged to expense under operating leases were $ 2,372 , $ 2,457 and $ 2,140 for fiscal 2019, 2018 and 2017, respectively. Operating lease commitments for each of the five succeeding fiscal years are as follows: fiscal 2020 - $ 1,528 ; fiscal 2021 - $ 1,451 ; fiscal 2022 - $ 1,293 ; fiscal 2023 - $ 967 ; and fiscal 2024 - $ 712 . +- +6 +6 +- +Table of Contents +(d) +Acquisition Price Holdback and Contingent Consideration - +Pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC, Meridian’s maximum remaining consideration to be paid totals $ 75,000 . As detailed in Note 2, this amount is comprised of: (i) a $ 5,000 purchase price holdback; and (ii) up to $ 70,000 of payments contingent upon the achievement of certain product development milestones and financial performance targets, the preliminary valuation of which totals approximately $ 27,200 as of September 30, 2019. +(e) +Litigation - +We are a party to various litigation matters from time to time that we believe are in the normal course of business. The ultimate resolution of these routine matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows. Additionally, the Company has also become a party to certain legal matters that are somewhat outside the normal course of business. See Item 3. “Legal Proceedings” for a discussion of the status of these selected legal matters. +(f) +Indemnifications - +In conjunction with certain contracts and agreements, we provide routine indemnifications related to our performance obligations. The terms of these indemnifications range in duration and in some circumstances are not explicitly defined. The maximum obligation under some such indemnifications is not explicitly stated and, as a result of our having no history of paying such indemnifications, cannot be reasonably estimated. We have no t made any payments for these indemnifications and no liability is recorded at September 30, 2019 or September 30, 2018. +(11) +Quarterly Financial Data (Unaudited) +The sum of the earnings per common share may not equal the corresponding annual amounts due to interim quarter rounding. +For the Quarter Ended in Fiscal 2019 +December 31 +March 31 +June 30 +September 30 +Net revenues +$ +51,480 +$ +50,248 +$ +48,440 +$ +50,846 +Gross profit +31,572 +29,338 +28,259 +29,156 +Net earnings +8,106 +7,094 +5,079 +4,103 +Basic earnings per common share +0.19 +0.17 +0.12 +0.10 +Diluted earnings per common share +0.19 +0.17 +0.12 +0.10 +Cash dividends per common share +0.125 +0.125 +— +— +For the Quarter Ended in Fiscal 2018 +December 31 +March 31 +June 30 +September 30 +Net revenues +$ +52,283 +$ +56,451 +$ +51,737 +$ +53,100 +Gross profit +32,010 +34,569 +31,962 +32,156 +Net earnings +6,302 +5,288 +6,825 +5,434 +Basic earnings per common share +0.15 +0.12 +0.16 +0.13 +Diluted earnings per common share +0.15 +0.12 +0.16 +0.13 +Cash dividends per common share +0.125 +0.125 +0.125 +0.125 +- +6 +7 +- +Table of Contents +ITEM 9. +CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS +ON ACCOUNTING AND FINANCIAL DISCLOSURE +Not applicable. +ITEM 9A. +CONTROLS AND PROCEDURES +As of September 30, 2019, an evaluation, excluding the internal controls of certain net assets of the business of GenePOC acquired in June 2009, was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule +13a-15(b) +and +15d-15(b) +promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2019. There have been no changes in our internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other factors that could significantly affect internal control subsequent to September 30, 2019. +Our internal control report is included in this Annual Report on Form +10-K +after Item 8, under the caption “Management’s Report on Internal Control over Financial Reporting.” +ITEM 9B. +OTHER INFORMATION +The following information is provided pursuant to Item 5.03 of Form +8-K. +Effective November 26, 2019 the Company’s Board of Directors adopted an amendment to its Amended and Restated Code of Regulations for the purpose of facilitating virtual meetings of shareholders. +The following sentence was added to Article II, Section 3 (Place of Meetings): “The Board of Directors may, in its sole discretion, determine that any meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Ohio law.” +The Amended and Restated Code of Regulations including this amendment is included as Exhibit 3.1 to this Annual Report on Form +10-K, +and is incorporated herein by reference. The foregoing summary of the amendment is qualified in its entirety by reference to the specific provisions of the Amended and Restated Code of Regulations. +- 68 - +Table of Contents +PART III. +ITEM 10. +DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Information about our directors and officers may be found under the captions “Election of Directors” and “Directors and Executive Officers” in our Proxy Statement for the Annual Meeting of Shareholders to be held January 29, 2020 (the “Proxy Statement”). Information about our Audit Committee may be found under the caption “Committees of the Board of Directors” in the Proxy Statement. That information is incorporated herein by reference. +We have adopted a code of ethics that applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and other finance organization employees. The code of ethics is publicly available on our website at meridiabioscience.com. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on that website or in a report on Form +8-K. +ITEM 11. +EXECUTIVE COMPENSATION +The information in the Proxy Statement set forth under the captions “Director Compensation,” “Compensation Discussion and Analysis” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference. +ITEM 12. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The information in the Proxy Statement set forth under the captions “Security Ownership of Certain Beneficial Owners,” and “Equity Compensation Plan Information” is incorporated herein by reference. +ITEM 13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Transactions with Related Persons” is incorporated herein by reference. +ITEM 14. +PRINCIPAL ACCOUNTING FEES AND SERVICES +Information concerning principal accountant fees and services appears in the Proxy Statement under the headings “Principal Accounting Firm Fees” and “Committees of the Board of Directors” and is incorporated herein by reference. +- 69 - +Table of Contents +ITEM 15. +EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) +(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES. +All financial statements and schedules required to be filed by Item 8 of this Form and included in this report have been so identified under Item 8. No additional financial statements or schedules are being filed since the requirements of paragraph (c) under Item 15 are not applicable to Meridian. +(b) +(3) EXHIBITS. +Exhibit +Number +Description of Exhibit +3.1 +Amended Articles of Incorporation (Filed herewith) +3.2 +Amended and Restated Code of Regulations (Filed herewith) +4.1 +Description of Securities (Filed herewith) +10.1* +Amendment No. 1 to Supplemental Benefit Agreement Dated September 23, 2014 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on September 25, 2014) +10.2* +Third Amended and Restated Employment Agreement Dated October 3, 2016 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on October 5, 2016) +10.3* +Amended and Restated Employment Agreement dated effective October 1, 2019 between Meridian and John P. Kenny (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on November 7, 2019) +10.4* +Dividend Reinvestment Plan (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1999) +10.5* +2004 Equity Compensation Plan, amended and restated effective January 25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2011) +10.6* +2012 Stock Incentive Plan, effective January 25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2011) +10.7* +Form of Time-Based Restricted Share Unit Award Agreement (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2018) +10.8* +Form of Meridian Bioscience, Inc. Change in Control Agreement dated August 4, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2016) +10.9** +Share Purchase Agreement dated as of April 29, 2019 by and among GenePOC Inc., Meridian Bioscience Canada Inc., the shareholders of GenePOC Inc., Apres-Demain Holding SA, as Shareholders’ Representative, and Meridian Bioscience, Inc. (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2019) +- 70 - +Table of Contents +10.10** +Credit Agreement, dated May 24, 2019 between Meridian Bioscience, Inc., as borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on May 31, 2019) +10.11** +Promissory Note dated June 3, 2019 between Meridian Bioscience Canada Inc. and GenePOC Inc. (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on June 3, 2019) +10.12* +Consulting Agreement between Meridian Bioscience, Inc. and Melissa Lueke dated December 10, 2018 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on December 12, 2018) +10.13* +Cash-Based Incentive Compensation Plan for Fiscal Year 2019 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on December 12, 2018) +10.14* +Separation Agreement and General Release Agreement between Meridian Bioscience, Inc. and Lawrence Baldini dated April 26, 2019 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on April 30, 2019) +10.15* +Separation Agreement and General Release between Meridian Bioscience, Inc. and Eric Rasmussen dated June 21, 2019 (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on June 25, 2019) +14 +Code of Ethics (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2003) +21 +List of Subsidiaries of the Registrant (Filed herewith) +23 +Consent of Independent Registered Public Accounting Firm (Filed herewith) +31.1 +Certification of Principal Executive Officer required by Rule 13a-14(a) (Filed herewith) +31.2 +Certification of Principal Financial Officer required by Rule 13a-14(a) (Filed herewith) +32*** +Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (Furnished herewith) +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) +* +Management Compensatory Contracts +- 71 - +Table of Contents +** +Schedules to and certain portions of these exhibits have been omitted pursuant to Item 601(b)(2) of Regulation +S-K. +The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted schedule or other portion to the SEC upon request. +*** +Furnished, not filed. +Meridian will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Meridian’s reasonable expenses in furnishing such exhibit. +ITEM 16. +FORM +10-K +SUMMARY +None. +- 72 - +Table of Contents +SIGNATURES +Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +MERIDIAN BIOSCIENCE, INC. +By: +/s/ Jack Kenny +Date: November 26, 2019 +Jack Kenny +Chief Executive Officer +We, the undersigned directors and officers of the Registrant, hereby severally constitute Jack Kenny and Bryan T. Baldasare, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to the Annual Report on Form +10-K +filed with the Securities and Exchange Commission. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +Capacity +Date +/s/ Jack Kenny +Chief Executive Officer and Director +November 26, 2019 +Jack Kenny +/s/ Bryan T. Baldasare +Executive Vice President, Chief +November 26, 2019 +Bryan T. Baldasare +Financial Officer and Secretary +(Principal Financial and Accounting Officer) +/s/ David C. Phillips +Chairman of the Board +November 26, 2019 +David C. Phillips +/s/ James M. Anderson +Director +November 26, 2019 +James M. Anderson +/s/ Dwight E. Ellingwood +Director +November 26, 2019 +Dwight E. Ellingwood +/s/ John C. McIlwraith +Director +November 26, 2019 +John C. McIlwraith +/s/ John M. Rice, Jr. +Director +November 26, 2019 +John M. Rice, Jr. +/s/ Catherine A. Sazdanoff +Director +November 26, 2019 +Catherine A. Sazdanoff +/s/ Felicia Williams +Director +November 26, 2019 +Felicia Williams +- 73 - +Table of Contents +SCHEDULE II +Meridian Bioscience, Inc. +and Subsidiaries +Valuation and Qualifying Accounts +(Dollars in thousands) +Years Ended September 30, 2019, 2018 and 2017 +Description +Balance at +Beginning +of Period +Charged to +Costs and +Expenses +Deductions +Other (a) +Balance at +End of +Period +Year Ended September 30, 2019: +Allowance for doubtful accounts +$ +310 +$ +347 +$ +( 100 +) +$ +( 20 +) +$ +537 +Inventory realizability reserves +1,971 +774 +( 448 +) +( 12 +) +2,285 +Valuation allowances – deferred taxes +302 +106 +— +— +408 +Year Ended September 30, 2018: +Allowance for doubtful accounts +$ +307 +$ +39 +$ +( 32 +) +$ +( 4 +) +$ +310 +Inventory realizability reserves +2,059 +321 +( 405 +) +( 4 +) +1,971 +Valuation allowances – deferred taxes +342 +— +( 40 +) +— +302 +Year Ended September 30, 2017: +Allowance for doubtful accounts +$ +334 +$ +90 +$ +( 134 +) +$ +17 +$ +307 +Inventory realizability reserves +2,680 +35 +( 661 +) +5 +2,059 +Valuation allowances – deferred taxes +342 +— +— +— +342 +(a) +Balances reflect the effects of currency translation. +- 7 +4 +- \ No newline at end of file diff --git a/raw/filings/0000794172/2019/0001193125-19-300565/filing_metadata.csv b/raw/filings/0000794172/2019/0001193125-19-300565/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..ba30fccc744f001b036fb260d5286c4d1b724a28 --- /dev/null +++ b/raw/filings/0000794172/2019/0001193125-19-300565/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000794172,VIVO,MERIDIAN BIOSCIENCE INC,10-K,2019-11-26,2019-09-30,2019-11-26T13:38:53.000Z,0001193125-19-300565,d785397d10k.htm,10-K,15725584,1,1,https://www.sec.gov/Archives/edgar/data/794172/000119312519300565/d785397d10k.htm,https://www.sec.gov/Archives/edgar/data/794172/000119312519300565/,2019,2019,1 diff --git a/raw/filings/0000794172/2019/0001193125-19-300565/item1.txt b/raw/filings/0000794172/2019/0001193125-19-300565/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..bf44cf2b21d8aca517375ebaf4a57880ad32974c --- /dev/null +++ b/raw/filings/0000794172/2019/0001193125-19-300565/item1.txt @@ -0,0 +1,25 @@ +ITEM 1. +BUSINESS +Overview +Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by IVD manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. The Company was incorporated in Ohio in 1976. Our principal corporate offices are located near Cincinnati, Ohio, USA. +Our website is +www.meridianbioscience.com +. We make available our Annual Reports on Form +10-K, +Quarterly Reports on Form +10-Q, +Current Reports on Form +8-K, +Proxy Statements and any amendments thereto, free of charge through this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site containing these filings and other information regarding Meridian at +www.sec.gov +. The information on our website is not and should not be considered part of this Annual Report on Form +10-K. +Reportable Segments +Our reportable segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. Detailed information related to the reportable segments can be found in the following locations within this Annual Report on Form +10-K: +- 4 - +Table of Contents +Type of Segment Information +Location within Annual Report on Form +10-K +Physical locations and activities \ No newline at end of file diff --git a/raw/filings/0000794172/2019/0001193125-19-300565/item13.txt b/raw/filings/0000794172/2019/0001193125-19-300565/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c67a44ce3b92d890209de84771c974711e457e7e --- /dev/null +++ b/raw/filings/0000794172/2019/0001193125-19-300565/item13.txt @@ -0,0 +1,3 @@ +ITEM 13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Transactions with Related Persons” is incorporated herein by reference. \ No newline at end of file diff --git a/raw/filings/0000794172/2019/0001193125-19-300565/item9a.txt b/raw/filings/0000794172/2019/0001193125-19-300565/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..f7a1bf2c86a743912f67b56a89fca7b18918d63a --- /dev/null +++ b/raw/filings/0000794172/2019/0001193125-19-300565/item9a.txt @@ -0,0 +1,10 @@ +ITEM 9A. +CONTROLS AND PROCEDURES +As of September 30, 2019, an evaluation, excluding the internal controls of certain net assets of the business of GenePOC acquired in June 2009, was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule +13a-15(b) +and +15d-15(b) +promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2019. There have been no changes in our internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other factors that could significantly affect internal control subsequent to September 30, 2019. +Our internal control report is included in this Annual Report on Form +10-K +after Item 8, under the caption “Management’s Report on Internal Control over Financial Reporting.” \ No newline at end of file diff --git a/raw/filings/0000794172/2019/0001193125-19-300565/rp_note.txt b/raw/filings/0000794172/2019/0001193125-19-300565/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000794172/2019/0001193125-19-300565/rpt_disclosure.txt b/raw/filings/0000794172/2019/0001193125-19-300565/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..55be980c4a9c1a1201d85f484516737451f5e2a7 --- /dev/null +++ b/raw/filings/0000794172/2019/0001193125-19-300565/rpt_disclosure.txt @@ -0,0 +1,13 @@ +TRANSACTIONS WITH RELATED PERSONS +Nasdaq rules require the Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC Regulation +S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such transactions must be approved by the Audit Committee or another Committee comprised of independent directors. As +a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it determines that it is in the best interests of the +14 +Table of Contents +Company. Additionally, the Audit Committee’s Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (directors +and Executive Officers or their immediate family members, or shareholders owning five percent or greater of the Company’s outstanding stock). This also covers any related person transaction that meets the minimum threshold for disclosure in the +proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all +relevant factors, including, as applicable: (i) the Company’s business rationale for entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms +comparable to those available to third parties, or in the case of employment relationships, to employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to +prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to the Company. This policy is included in the Company’s Employee Handbook. The approvals of such related person transactions are evidenced by +internal Company resolutions, minutes or memoranda. \ No newline at end of file diff --git a/raw/filings/0000794172/2020/0001193125-20-300813/filing.txt b/raw/filings/0000794172/2020/0001193125-20-300813/filing.txt new file mode 100644 index 0000000000000000000000000000000000000000..49d3762d049ba956dae4ada3532ab2baf6e16458 --- /dev/null +++ b/raw/filings/0000794172/2020/0001193125-20-300813/filing.txt @@ -0,0 +1,4970 @@ +10-K +Yes false 2020 FY MERIDIAN BIOSCIENCE INC 0000794172 --09-30 Yes No No P5Y 0000794172 2019-10-01 2020-09-30 0000794172 2018-10-01 2019-09-30 0000794172 2017-10-01 2018-09-30 0000794172 2020-09-30 0000794172 2019-09-30 0000794172 2018-10-01 2018-12-31 0000794172 2019-01-01 2019-03-31 0000794172 2019-04-01 2019-06-30 0000794172 2019-07-01 2019-09-30 0000794172 2019-10-01 2019-12-31 0000794172 2020-01-01 2020-03-31 0000794172 2020-04-01 2020-06-30 0000794172 2020-07-01 2020-09-30 0000794172 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Ohio 45244 +IRS Employer ID +No. 31-0888197 +State of Incorporation: Ohio +Phone: ( 513 ) +271-3700 +Securities registered pursuant to Section 12(b) of the Act: +Title of each class +Trading Symbol +Name of each exchange on which registered +Common Shares , No Par Value +VIVO +The NASDAQ Stock Market LLC +(NASDAQ Global Select 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. YES ☐ NO ☒ +Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒ +Table of Contents +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 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. YES ☒ NO ☐ +Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation +S-T +(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐ +Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a +non-accelerated +filer, a smaller reporting company, or 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 filer +☒ +Non-accelerated +filer +☐ +Smaller reporting company +☐ +Emerging Growth Company +☐ +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 Act. ☐ +Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. +☒ +Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule +12b-2). YES ☐ NO ☒ +The aggregate market value of Common Shares held by +non-affiliates +as of March 31, 2020 was $ 357,822,024 based on a closing sale price of $8.40 per share on March 31, 2020. As of October 31, 2020, 43,076,077 +shares of Common Stock, no par value, were issued and outstanding. +DOCUMENTS INCORPORATED BY REFERENCE +Portions of the Proxy Statement for the 2021 Annual Meeting of Shareholders, which will be filed within one hundred and twenty days of the fiscal year ended September 30, 2020 (2021 Proxy Statement), are incorporated by reference into Part III of this report to the extent described herein. +Table of Contents +MERIDIAN BIOSCIENCE, INC. +INDEX TO ANNUAL REPORT +ON FORM +10-K +Page +Part I +Item 1 +Business +4 +Item 1A +Risk Factors +11 +Item 1B +Unresolved Staff Comments +22 +Item 2 +Properties +22 +Item 3 +Legal Proceedings +22 +Item 4 +Mine Safety Disclosures +23 +Part II +Item 5 +Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities +23 +Item 6 +Selected Financial Data +24 +Item 7 +Management’s Discussion and Analysis of Financial Condition and Results of Operations +25 +Item 7A +Quantitative and Qualitative Disclosures about Market Risk +36 +Item 8 +Financial Statements and Supplementary Data +37 +Item 9 +Changes in and Disagreements with Accountants on Accounting and Financial Disclosure +73 +Item 9A +Controls and Procedures +73 +Item 9B +Other Information +73 +Part III +Item 10 +Directors, Executive Officers and Corporate Governance +74 +Item 11 +Executive Compensation +74 +Item 12 +Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters +74 +Item 13 +Certain Relationships and Related Transactions, and Director Independence +74 +Item 14 +Principal Accountant Fees and Services +74 +Item 15 +Exhibits and Financial Statement Schedules +75 +Item 16 +Form 10-K Summary +77 +NOTE ABOUT FORWARD-LOOKING STATEMENTS +This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: “Business” (Part I, Item 1 of this Form +10-K), +“Risk Factors” (Part I, Item 1A of this Form +10-K), +and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7 of this Form +10-K). +These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to differ materially in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” (Part II, Item 7A of this Form +10-K) +and elsewhere in this Form +10-K. +Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, the +COVID-19 +pandemic, or otherwise. +Table of Contents +Unless the context requires otherwise, references in this Annual Report on +Form 10-K +to “Meridian,” “we,” “us,” “our,” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries. +In the discussion that follows, all dollar amounts and share amounts are in thousands (both tables and text), except per share data. +This Annual Report on Form +10-K +refers to trademarks such as Alethia +® +, BreathID +® +, Curian +® +, Immuno +Card +® +, Immuno +Card +STAT! +® +, LeadCare +® +, MyTaq +™ +, Pediastat +™ +, PREMIER +® +, revogene +® +and SensiFAST +™ +, which are protected under applicable intellectual property laws and are our property. Solely for convenience, our trademarks and tradenames referred to in this Form +10-K +may appear without the +® +or +™ +symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames. Our molecular diagnostic test platform formerly known under the tradenames +illumi +gene +and +illumi +pro +, has been rebranded under the tradename Alethia. References to Alethia throughout this Annual Report on Form +10-K +refer to our molecular diagnostic tests and instrumentation formerly marketed and sold under the +illumi +gene +and +illumi +pro +brands. +PART I. +ITEM 1. +BUSINESS +Overview +Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by in vitro diagnostic (“IVD”) manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. +Our website is +www.meridianbioscience.com +. We make available our Annual Reports on Form +10-K, +Quarterly Reports on Form +10-Q, +Current Reports on Form +8-K, +Proxy Statements and any amendments thereto, free of charge through this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site containing these filings and other information regarding Meridian at +www.sec.gov +. The information on our website is not and should not be considered part of this Annual Report on Form +10-K. +Reportable Segments +Our reportable segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. We describe these segments in this “Business” section and in other locations in this report: +Type of Segment Information +Location within Annual Report on Form 10-K +Physical locations and activities +Item 2. “Properties” +Revenue by geographic region +Item 7. “Management’s Discussion and Analysis of Financial Condition & Results of Operations” (hereafter “MD&A”) +Financial information +Note 10 of Consolidated Financial Statements +- 4 - +Table of Contents +Diagnostics Segment +Products and Markets +Prior to the current year effects of the +COVID-19 +pandemic, our largest source of revenues has been clinical diagnostic products, historically representing approximately +two-thirds +of our consolidated revenues. However, primarily due to the effects of the pandemic, our Diagnostics segment provided 48% of consolidated net revenues for fiscal 2020. +Our clinical diagnostic products provide accuracy, simplicity and speed; enable early diagnosis and treatment of common, acute medical conditions; and provide for better patient outcomes at reduced costs. We target diagnostics for disease states that: (i) are conditions where rapid diagnosis impacts patient outcomes; (ii) have opportunistic demographic and disease profiles; (iii) are underserved by current diagnostic products; and/or (iv) have difficult sample handling requirements (e.g., stool). This approach has allowed us to establish meaningful market share in our target disease states, gastrointestinal and respiratory illnesses, and tests for elevated lead levels in blood. +Our product portfolio includes approximately 150 diagnostic tests and transport media, and is marketed to acute care hospitals, reference laboratories, outpatient clinics and physician office laboratories in over 70 countries around the world. Our testing platforms include: Real-time PCR Amplification (Revogene brand); Isothermal DNA Amplification (Alethia brand); Lateral Flow Immunoassay using fluorescent chemistry (Curian brand); Rapid Immunoassay (Immuno +Card +and Immuno +Card +STAT! brands); +Enzyme-linked +Immunoassay (PREMIER brand); Anodic Stripping Voltammetry (LeadCare and Pediastat brands); and urea breath testing for +H. pylori +(BreathID brand). +Our research and development programs are focused on menu expansion for our Curian and Revogene instrument platforms, with disease targets in the gastrointestinal and respiratory areas, as well as next generation blood-chemistry testing. Over the next 12 months, we intend to submit to the FDA at least six new products across both the Curian and Revogene instrument platforms. These new products include the following: Curian – Campylobacter, EHEC Shiga Toxins and +C. difficile +combo common antigen and Toxins A and B; Revogene – +SARS-CoV-2 +(emergency use authorization), gastrointestinal panel and respiratory panel. Although at an earlier stage in our research and development program, we are also exploring the merits and viability of a liver function test on the BreathID system. We are also pursuing opportunities to complement our internal research and development programs by securing rights to finished diagnostics tests. Our arrangement with GenBody for access to its rapid antigen +SARS-CoV-2 +test is a recent example of this pursuit. +The 2019 acquisition of the GenePOC business and the Revogene platform refreshed our molecular diagnostics product portfolio, stabilized our molecular customer base and provided menu expansion opportunities for +RNA-based +tests and +small-to-mid +sized multi-target panels. This year’s acquisition of Exalenz Bioscience Ltd. (“Exalenz”) and the BreathID system strengthened our position in +H. pylori +testing, as it gives us a second +non-invasive +test (in addition to stool antigen testing). +Market Trends +Despite the effects of the global +COVID-19 +pandemic and the near-term focus on +SARS-CoV-2 +testing, we believe the global market for infectious disease tests continues to expand as new disease states are identified, new therapies become available, and worldwide standards of living and access to health care improve. There is a continuing shift from conventional testing to more technologically advanced testing, which can be performed by less highly trained personnel and completed in minutes or hours. +The growing global pressures to contain total health care costs have accelerated the increased use of diagnostic testing. Integrated Delivery Networks (“IDNs”) in our U.S. market have the goal of increasing the efficiency of health care delivery, reducing spending and improving clinical outcomes. We believe our product portfolio positions us competitively with IDNs and health care systems that are transitioning from +fee-for-service +compensation models to value-based reimbursement. +We also continue to see aggregation of buying power in our U.S. market via multi-hospital group purchasing organizations and IDNs, consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and acquisition of physician practices by hospitals, health systems and +for-profit +specialty health care companies. +- 5 - +Table of Contents +Cost containment pressures have also affected health care systems outside the U.S., particularly in Europe, where the health care systems are generally +government-run. +The level of government budget deficits can have an adverse effect on the amount of government health care spend. +Sales, Marketing and Distribution +Our Diagnostics segment relies on direct sales personnel and independent distribution networks. We have a direct sales force in four countries, covering the United States and certain major markets in the EMEA region. We also use independent distributors either in a complementary manner with our direct sales force (e.g., the United States) or solely to supply our products to +end-users. +Two independent distribution customers in the United States have historically significantly contributed to our revenues, comprising 21% of consolidated revenues as recently as fiscal 2018. +Competition +Our major competitors in molecular diagnostics are Cepheid (a Danaher business) and Becton Dickinson, both of which have systems with multiple-assay menus. We also face competition in molecular diagnostics, but to a lesser degree, from companies such as Abbott (former Alere business) and Quidel. +Our major competitors in rapid immunoassay diagnostics are primarily Abbott (former Alere business) and Quidel. In recent years, companies such as bioMerieux have captured market share in our gastrointestinal category via its BioFire multi-plex panel tests. However, since their introduction to the market, payors have raised concerns over reimbursement levels relative to clinical utility, particularly for panels with 12 or more targets. +For blood lead testing, we believe we have the only +FDA-cleared, +CLIA-waived +point-of-care +test available commercially. Other blood lead testing systems in use, marketed by our competitors, include Graphite Furnace Atomic Absorption Spectroscopy, which requires a highly skilled technician and larger laboratory space to operate, in addition to not being portable or suitable for +point-of-care +use. +Our major competitor for urea breath testing for +H. pylori +is Otsuka, a pharmaceutical company that also markets and sells a urea breath testing system. We believe that our BreathID system has a competitive advantage in that it: (i) has substantially higher sensitivity and specificity; (ii) has a shorter processing time; (iii) offers full automation; and (iv) connects directly to lab information systems. +We believe that with the breadth and depth of our product portfolio, we are well positioned for the clinical laboratory. +Research and Development +Our Diagnostics segment’s research and development personnel are organized into three +pre-clinical +teams: immunoassay, +PCR-based +molecular and blood-chemistry. We have a separate team responsible for execution of clinical trials across all three +pre-clinical +programs. Our research and development activities are focused on new product and new technology development, new applications for our existing technologies, and improvements to existing products, including assay-menu expansion. Research and development efforts may occur +in-house +or with collaborative partners. We believe that new product development is a key source for sustaining revenue growth. The products within our Revogene and Alethia molecular platforms, +H. pylori +product family and blood lead testing family were developed +in-house. +See “Operating Expenses” section within MD&A on page 31. +Manufacturing +Our Diagnostics tests are manufactured at four principal sites in Billerica, Massachusetts (blood-chemistry); Cincinnati, Ohio (immunoassays and molecular tests); Modi’in, Israel, (urea breath tests for +H. pylori +); and Quebec City, Quebec, Canada (molecular tests). Our immunoassay and molecular assay products require the production of highly specialized reagents, primers and enzymes, and our BreathID system requires the production of urea in pharmaceutical-grade form. We produce the vast majority of our own immunoassay requirements. Reagents, primers and enzymes for our Revogene molecular assay products, primers for our Alethia molecular assay products, and urea for our BreathID system are purchased from outside vendors. Our blood lead testing products require the production of electrical chemical sensors, which we manufacture using critical raw materials purchased from outside vendors. +- 6 - +Table of Contents +Intellectual Property, Patents and Licenses +We own or license U.S. and foreign patents, most of which are for select products manufactured by our Diagnostics segment. These patents are used in our manufacturing processes for select products (e.g., method patents) or may relate to the design of the test device technology format (e.g., design patents). In the absence of patent protection, we may be vulnerable to competitors who successfully replicate our production and manufacturing technologies and processes. Our employees are required to sign confidentiality and +non-disclosure +agreements designed to protect our proprietary products. +The patents for our Alethia products, which represented 9%, 13% and 16% of consolidated revenues for fiscal 2020, 2019 and 2018, respectively, are licensed from a third party, Eiken Chemical Co., Ltd., under a +non-exclusive +license agreement and expire between 2020 and 2022. These patents were issued in the U.S., European Union and other countries. The term of our license agreement runs until the last patent expires in 2022, at which point we will be free to practice the patents without any restriction or royalty obligation. +The patents for the Revogene platform and related products acquired as part of the GenePOC business are either wholly owned or licensed from two third parties, Laval University and The Regents of California, under an exclusive license agreement. These patents are issued in the U.S., European Union and other countries. The term of our exclusive license agreement and the related patents currently runs through June 15, 2034, after which we will be free to practice the patents without any restriction or royalty obligation. For a description of our acquisition of the GenePOC business, see Note 2 of the accompanying Consolidated Financial Statements. +The patents for the BreathID system and related urea breath test for +H. pylori +are either wholly owned or licensed from a third party, Oridion Medical 1987 Ltd., under an exclusive, royalty free, license agreement. The licensed and wholly owned patents are issued in the U.S., European Union, Israel, Japan, Australia and China. The wholly owned patents have varying expiration dates, with the last being in 2033. +The patents for our stool antigen +H. pylori +products, owned by us and which represented approximately 10%, 16% and 16% of consolidated revenues for fiscal 2020, 2019 and 2018, respectively, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our stool antigen +H. pylori +products to continue to increase, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We have executed on a number of measures to address competitive pressures in coming off patent including: (i) in October 2018, we entered into a strategic collaboration with DiaSorin to sell +H. pylori +tests; (ii) we have executed multi-year supply agreements with our two largest reference laboratory customers for +H. pylori +tests to secure volume, albeit at lower selling prices; and (iii) upon FDA clearance in March 2020, we launched Curian HpSA, our first assay on the new Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the acquisition of the Exalenz BreathID platform to combat competitive pressures, as we believe that we are now the only company with +FDA-cleared, +non-invasive +assays for both stool antigen and urea breath samples, allowing physicians a choice in test format from a single supplier. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +Government Regulation +Our diagnostic products are regulated by the FDA as “devices” pursuant to the Federal Food, Drug, and Cosmetic Act (“FDCA”). Under the FDCA, medical devices are classified into one of three classes (i.e., Class I, II or III). Class I and II devices are not expressly approved by the FDA, but, instead, are “cleared” for marketing. Class III devices generally must receive +“pre-market +approval” from the FDA as to safety and effectiveness. Our diagnostics manufacturing facilities are subject to periodic inspection by the FDA. See page 28 within MD&A for discussion regarding the FDA’s inspection of our Billerica facility. +Each of the diagnostic products currently marketed by us in the United States has been cleared by the FDA pursuant to the 510(k) clearance process or is exempt from such requirements. We believe that most, but not all (e.g., liver function test on the BreathID system in development, a Class III medical device), products under development will be classified as Class I or II medical devices and, in the case of most of our Class I and all Class II devices, will be eligible for 510(k) clearance; however, we can make no assurances in this regard. Our urea breath test for +H. pylori +on the BreathID system was cleared as a Class I medical device since the urea drug component was approved by the FDA separately via the New Drug Application process. Our +SARS-CoV-2 +test on the Revogene platform is expected to be submitted to the FDA under its emergency use authorization program in late November or early December 2020. We notified the FDA of our intent to submit for emergency use authorization on November 13, 2020. +- 7 - +Table of Contents +Sales of our diagnostic products in foreign countries are subject to foreign government regulation, which is similar to that of the FDA. Our Diagnostics facilities are certified to ISO 13485:2016. +Following a five-year transition period, sales of our diagnostic tests in the European Union will be subject to new regulations under the In Vitro Diagnostics Regulation of 2017 (“IVDR”) beginning in May 2022. IVDR replaces the previous IVD Regulation (98/79/EC). We have begun our assessment regarding which products will not be sellable under IVDR and the revenue associated with these products is not expected to be material. +Our principal business is the sale of a broad range of clinical diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak or the current +COVID-19 +pandemic. While we believe that the breadth of our diagnostic product lines normally reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in diagnostic revenues, the current +COVID-19 +pandemic did result in a significant decline in our Diagnostics revenues during the second half of fiscal 2020. Accordingly, we can make no assurance that revenues will not be impacted period over period by such factors. +Life Science Segment +Products and Markets +Our Life Science segment develops, manufactures, sells and distributes bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used predominantly by IVD manufacturing companies, and to a lesser degree, by researchers and +non-human +clinical customers. The +COVID-19 +pandemic has provided the opportunity for our Life Science segment to showcase the breadth of its reagent products across not only +SARS-CoV-2 +testing platforms (molecular, rapid antigen and serology), but also RNA and DNA based molecular tests for nearly any infectious disease. For fiscal 2020, approximately 85% of Life Science revenues were generated from the industrial market, defined as IVD manufacturers, and reagents for use in +SARS-CoV-2 +tests contributed approximately $71,500 in new revenues. We engage direct sales teams in the U.S., the U.K., France, Germany, China and Australia. During fiscal 2020, 27% of third-party revenues for this segment were from three IVD manufacturing customers. +Our Life Science products are marketed to IVD manufacturing customers as a source of raw materials for their human clinical diagnostics tests, or as an outsourced step in their manufacturing processes. We seek and maintain multi-year supply arrangements to provide stability in volumes and pricing. Independent distributors market our molecular biology products to academic/research customers. These products are used in measuring DNA and RNA in human, animal, plant and environmental applications. +Market Trends +Major IVD manufacturing customers often have global footprints, where we are supplying reagents to specific manufacturing sites around the world. IVD manufacturers in specific countries of the Asia-Pacific region (e.g., China) are increasing their efforts in the development and manufacturing of infectious disease tests. We intend to use the breadth of our product portfolio, particularly molecular reagents, to increase the penetration of our products in IVD manufacturing customers’ tests, regardless of customer class (large multi-national companies or regional companies). +Competition +The market for bulk biomedical reagents is highly competitive with respect to product quality, price, customer service and reputation. Our competitors often have greater financial, research and development, sales and marketing, and manufacturing resources. Customers also may choose to manufacture their biomedical reagents +in-house +rather than purchase from us. +- 8 - +Table of Contents +Research and Development +Our research and development activities for the Life Science segment focus on improving molecular reagents, including DNA and RNA master mixes. For example, our Life Science segment introduced a family of lyophilization-ready reagents that have a number of advantages over prior generation “wet” reagents (e.g., room-temperature shipping and storage and longer shelf-life). See “Operating Expenses” section within MD&A on page 31. +Manufacturing and Government Regulation +Our Life Science facilities are ISO 13485:2016 certified. Additionally, where appropriate, our Life Science facilities comply with Regulation EC 1069:2009. +International Markets +International markets are an important source of revenues and future growth opportunities for both of our segments. For both segments combined, revenues from customers located outside of the United States and its territories approximated $122,000 or 48% of consolidated fiscal 2020 revenues, $74,000 or 37% of consolidated fiscal 2019 revenues, and $71,000 or 33% of consolidated fiscal 2018 revenues. For our Life Science segment, the +COVID-19 +pandemic resulted in the significantly higher percentage of international revenues for fiscal 2020. We expect to continue to look to key European markets as a source of revenue growth in the future for both business units. For the Life Science segment, we have also focused resources on IVD manufacturing customers in China. To date, we have not experienced any adverse effects from the trade tensions between the United States and China, but we cannot be sure that we will not experience any adverse effects in the future. +Fluctuations in foreign currency exchange rates since fiscal 2019 had an approximate $1,250 unfavorable impact on fiscal 2020 revenues; $150 within the Diagnostics segment and $1,100 within the Life Science segment. This compares to +year-to-year +currency exchange rates having an approximate $2,200 unfavorable impact on revenues in fiscal 2019; $1,150 within the Diagnostics segment and $1,050 within the Life Science segment. +Environmental +We are in compliance with applicable portions of the federal and state hazardous waste regulations and have never been a party to any environmental proceeding. +Human Capital +As of September 30, 2020, our Diagnostics segment had approximately 560 employees in ten countries and our Life Science segment had approximately 190 employees in seven countries. Approximately 58% of our employees are women. In addition, of our U.S. based employees, which represents approximately 60% of our total worldwide workforce, approximately 23% are ethnically diverse. +Below is additional demographic information about our current employee base as of September 30, 2020. +Meridian Employees +2020 +Salaried workforce +537 +Managers and above +157 +Part-time employees +27 +Average age +43 +Average length of service in years +7 +Employee turnover rate (voluntary) +13 +% +Fiscal 2020 revenues per employee (in thousands) +$ +340 +- 9 - +Table of Contents +Equal Employment Opportunity Table (by number of employees) +U.S. Employee Diversity as of September 30, 2020 +Job category +Gender +White +Black/African +American +Hispanic/Latino +Asian +American +Indian/Alaskan +Native +Two +or +more +races +Total +Executive/senior level officials and managers +Male +11 +— +— +— +— +— +11 +Female +2 +— +1 +— +— +— +3 +First/mid-level +officials and managers +Male +38 +3 +2 +3 +— +— +46 +Female +38 +4 +— +2 +— +1 +45 +Professionals +Male +56 +2 +2 +4 +1 +2 +67 +Female +67 +6 +4 +8 +— +2 +87 +All other +Male +48 +9 +5 +4 +— +1 +67 +Female +84 +13 +7 +10 +— +4 +118 +Total +Male +153 +14 +9 +11 +1 +3 +191 +Female +191 +23 +12 +20 +— +7 +253 +We believe that developing a diverse, equitable and inclusive culture is critical to continuing to attract and retain the top talent necessary to deliver on our growth strategy. As such, we are investing in the creation of a work environment where our employees can feel inspired to deliver their workplace best every day. All employees are responsible for upholding the Meridian Values and Meridian Code of Conduct, which form the foundation of our policies and practices. We continue to expand our Human Resources Information System (“HRIS”) and other systems to track key human capital metrics, including workforce demographics, diversity, turnover, engagement and training data. +Diversity, Equity and Inclusion +A diverse and inclusive workforce is a business imperative and key to our long-term success. To champion our efforts in this area, we have recently initiated the “One Meridian Inclusion Diversity and Equity Team,” which is comprised of a group of employees around the world and led by Dr. Lourdes Weltzien, Executive Vice President, Life Science. This team will be developing a mission and a strategy that will look to identify gaps and present suggestions on how we can encourage and enforce an environment in which all employees feel included and empowered to achieve their best. Though we are proud of our efforts in these areas to date, we realize that the voice and ongoing feedback of this newly established team is critical for Meridian to achieve its full potential. +Compensation and Benefits +We strive to provide pay, benefits, and services that are competitive to market and create incentives to attract and retain employees globally. Our compensation package includes market-competitive pay, broad-based stock grants and bonuses, health care and retirement benefits, paid time off and family leave, among others, depending upon locale. We are focused on pay equity globally and are striving to close the gap in pay among similar roles and responsibilities throughout our organization, after accounting for legitimate business factors that can explain differences, such as performance, time at grade level, and tenure. We also continue to advance transparency in our pay and representation data by complying with all applicable statutory filing requirements. +Communication and Engagement +We strongly believe that Meridian’s success depends on employees understanding how their work contributes to the Company’s overall strategy. To this end, we utilize a variety of channels to facilitate open and direct communication, including: (i) quarterly CEO update videos; (ii) open forums or town hall meetings with executives; (iii) regular ongoing update communications; and (iv) employee engagement surveys. +- 10 - +Table of Contents +Health, Wellness and Safety +We are committed to the safety of our employees and communities, from operations to product development to supplier partnerships. Our ultimate goal is to achieve zero serious injuries through continued investment in and focus on our core safety programs and injury-reduction initiatives. We provide access to a variety of innovative, flexible, and convenient health and wellness tools. +ITEM 1A. +RISK FACTORS +In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition, cash flows or future results. Any one of these factors could cause our actual results to vary materially from recent results or from anticipated future results. The risks described below are not the only risks facing our company. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition and/or operating results. +Risks Affecting Growth and Profitability of our Business +Our financial condition, results of operations and cash flows could be adversely affected by the ongoing coronavirus +(COVID-19) +outbreak. +Any outbreak of contagious diseases, such as +COVID-19, +or other adverse public health developments, could have material and adverse effects on our business operations. Such adverse effects could include diversion or prioritization of health care resources away from the conduct of diagnostic testing, disruptions of or restrictions on the ability of laboratories to process our tests, and delays with respect to or difficulties in patients accessing our tests, including those resulting from an inability to travel as a result of quarantines or other restrictions resulting from +COVID-19. +As +COVID-19 +continues to affect individuals and businesses around the globe, we may experience disruptions that could severely impact our business, including: +• +decreased volume of testing and related sales of certain of our Diagnostics products as a result of disruptions to health care providers and limitations on the ability of providers to administer tests; +• +disruptions or restrictions on the ability of the Company’s, our collaborators’, or our suppliers’ personnel to travel, and temporary closures of our facilities, or the facilities of our collaborators or suppliers; +• +limitations on employee resources that would otherwise be focused on the development of our products, the processing of our diagnostic tests, and/or the conduct of our clinical trials, because of illness of employees or their families, or requirements imposed on employees to avoid contact with large groups of people; and +• +delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees. +In addition, the continued spread of +COVID-19 +globally could adversely affect our manufacturing and supply chains. Parts of our direct and indirect supply chains are located overseas, including in China, and may accordingly be subject to disruption. Additionally, our results of operations could be adversely affected to the extent that +COVID-19 +or any other epidemic harms our business or the economy in general either domestically or in any other region in which we do business. The extent to which +COVID-19 +affects our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of +COVID-19, +and the actions to contain +COVID-19 +or treat its impact, among others, which could have an adverse effect on our business, results of operations and financial condition. To date, we are seeing that the outbreak has slowed our assay instrument placements and sales of related test kits as diagnostic testing sites have turned their attention to critical care testing. We are unable to predict when expected sales volume levels for our instruments and related test kits will return. Also, as a result of the pandemic, certain clinical trials related to our products which were underway or scheduled to begin have been temporarily placed on hold. Such delays will impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the pandemic could slow down our efforts to expand our product portfolio through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market. +- 11 - +Table of Contents +If our essential employees who are unable to telework become ill or otherwise incapacitated, our operations may be adversely impacted. +Consistent with rapidly changing federal, state and local governmental orders and recommendations, we have implemented telework policies wherever possible for appropriate categories of our employees. Employees that are unable to telework continue to work at our facilities, and we have implemented appropriate safety measures, including social distancing, face covering mandates, temperature checking, and increased sanitation standards in an attempt to maintain the health and safety of our workforce. We are following guidance from the Center for Disease Control (“CDC”) and the Occupational Safety and Health Administration (“OSHA”) regarding suspension of nonessential travel, self-isolation recommendations for employees returning from certain geographic areas, confirmed reports of any +COVID-19 +diagnosis among our employees, and the return of such employees to our workplace. Pursuant to updated guidance from the Equal Employment Opportunity Commission, we are engaging in limited and appropriate inquiries of employees regarding potential +COVID-19 +exposure, based on the direct threat that such exposure may present to our workforce. We continue to address other unique situations that arise among our workforce due to the +COVID-19 +pandemic on a +case-by-case +basis. While we believe that we have taken appropriate measures to ensure the health and wellbeing of our employees, there can be no assurances that our measures will be sufficient to protect our employees in our workplace or that they may not otherwise be exposed to +COVID-19 +outside of our workplace. If a number of our essential employees become ill, incapacitated or are otherwise unable to continue working during the current or any future epidemic, our operations may be adversely impacted. +We may be unable to develop new products and services or acquire products and services on favorable terms. +The medical diagnostic and life science industries are characterized by ongoing technological developments and changing customer requirements. As such, our results of operations and continued growth depend, in part, on our ability in a timely manner to develop or acquire rights to, and successfully introduce into the marketplace, enhancements of existing products and services, or new products and services that incorporate technological advances, meet customer requirements and/or respond to products developed by our competition. We cannot provide any assurance that we will be successful in developing or acquiring such rights to products and services on a timely basis, or that such products and services will adequately address the changing needs of the marketplace, either of which could adversely affect our results of operations. +In addition, we must regularly allocate considerable resources to research and development of new or acquired products, services and technologies, and protecting intellectual property. The research and development process generally takes a significant amount of time from research to product launch. This process is conducted in various stages. During each stage, there is a risk that we will not achieve our goals on a timely basis, or at all, and we may have to abandon a project in which we have invested substantial resources, any of which could adversely affect our results of operations. +We may be unable to successfully integrate operations or to achieve expected cost savings from acquisitions we make. +One of our growth strategies is the acquisition of companies and/or products. Although additional acquisitions of companies and products may enhance the opportunity to increase net earnings over time, such acquisitions could result in greater administrative burdens, increased exposure to the uncertainties inherent in marketing new products, financial risks of additional operating costs, disrupted operations, challenges in employee retention, and increased risk of asset impairments if future revenues and cash flows are deficient. The principal benefits expected to result from any acquisitions we make will not be achieved fully unless we are able to successfully integrate the operations of the acquired entities with our operations and realize the anticipated synergies, cost savings and growth opportunities from integrating these businesses into our existing businesses. We cannot provide assurance that we will be able to identify and complete additional acquisitions on terms we consider favorable or that, if completed, will be successfully integrated into our operations. Furthermore, we cannot predict the outcome of goodwill impairment testing and the impact of goodwill impairments on the Company’s earnings and financial results. +- 12 - +Table of Contents +Revenues for our Diagnostics segment may be impacted by our reliance upon two key distributors in North America, seasonal factors and sporadic outbreaks, and changing diagnostic market conditions. +Key Distributors +Our Diagnostics segment’s revenues from sales through two U.S. distributors were approximately 23% and 26% of the Diagnostics segment’s total revenues for fiscal 2020 and fiscal 2019, respectively, or approximately 12% and 18%, respectively, of each fiscal year’s consolidated revenues. These parties distribute our products and other laboratory products to +end-user +customers. The loss of either of these distributors could negatively impact our revenues and results of operations unless suitable alternatives were timely found or lost sales to one distributor were absorbed by another distributor. Finding a suitable alternative on satisfactory terms may pose challenges in our industry’s competitive environment. As an alternative, we could expand our efforts to distribute and market our products directly. This alternative, however, would require substantial investment in additional sales, marketing and logistics resources, including hiring additional sales and customer service personnel, which would significantly increase our future selling, general and administrative expenses. +In addition, buying patterns of these two distributors may fluctuate from quarter to quarter, potentially leading to uneven concentration levels on a quarterly basis. +Seasonal Factors and Sporadic Outbreaks +Our principal business is the sale of a broad range of diagnostic test kits for common gastrointestinal and respiratory infectious diseases, and elevated blood lead levels. Certain infectious diseases may be seasonal in nature, while others may be associated with sporadic outbreaks, such as foodborne illnesses or pandemics such as an influenza outbreak or the current +COVID-19 +pandemic. While we believe that the breadth of our diagnostic product lines normally reduces the risk that infections subject to seasonality and sporadic outbreaks will cause significant variability in diagnostic revenues, the current +COVID-19 +pandemic did result in a significant decline in our Diagnostics revenues during the second half of fiscal 2020. Accordingly, we can make no assurance that revenues will not be negatively impacted period over period by such factors. +Changing Diagnostic Market Conditions +Changes in the U.S. health care delivery system have resulted in consolidation among reference laboratories, hospital laboratories being operated by large reference laboratories, and the formation of multi-hospital alliances, reducing the number of institutional customers for diagnostic test products. Consolidation in the U.S. health care industry has also led to the creation of group purchasing organizations (“GPOs”) and IDNs that aggregate buying power for hospital groups and put pressure on our selling prices. Due to such consolidation, we may not be able to enter into and/or sustain contractual or other marketing or distribution arrangements on a satisfactory commercial basis with institutional customers, GPOs and/or IDNs, which could adversely affect our results of operations. +We could be adversely affected by health care reform legislation. +Third-party payers for medical products and services, including state, federal and foreign governments, are increasingly concerned about escalating health care costs and can indirectly affect the pricing or the relative attractiveness of our products by regulating the maximum amount of reimbursement they will provide for diagnostic testing services. Following years of increasing pressure, during 2010 the U.S. government enacted comprehensive health care reform with the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, which made changes that significantly impact the pharmaceutical and medical device industries. The Protecting Access to Medicare Act of 2014 requires applicable laboratories to report all private payor reimbursement rates and the volumes for each test they perform. The statute requires that Medicare establish reimbursement rates based on the weighted median of private insurance reimbursement rates effective January 1, 2017. The new Medicare rates would be subject to a maximum reduction of 10% a year for the initial three-year period and a maximum of 15% a year for the subsequent three-year period. There is no limit on the amount of potential rate increases. As a result, some of our customers in the United States may experience lower Medicare reimbursement rates for our products, which may adversely affect our business, financial condition and results of operations. We are seeing some effect on the reimbursement rates for our products. If reimbursement amounts for diagnostic testing services decrease further in the future, such decreases may reduce the amount that will be reimbursed to hospitals or physicians for such services and consequently, could place constraints on the levels of overall pricing, which could have a material effect on our revenues and/or results of operations. +- 13 - +Table of Contents +Additional state and federal health care reform measures may be adopted in the future, any of which could have a material adverse effect on our ability to successfully commercialize our products and on our industry in general. For example, the United States government has in the past considered, is currently considering, and may in the future consider, health care policies and proposals intended to curb rising health care costs, including those that could significantly affect both private and public reimbursement for health care services. Further, state and local governments, as well as a number of foreign governments, are also considering or have adopted similar types of policies. Future significant changes in the health care system in the United States or elsewhere, and current uncertainty about whether and how changes may be implemented, could have a negative impact on the demand for our products. We are unable to predict whether health care policies, including policies stemming from legislation or regulations affecting our business, may be proposed or enacted in the future, what effect such policies would have on our business, or the effect that ongoing uncertainty about these matters will have on the purchasing decisions of our customers. +Efforts to reduce the U.S. federal deficit could adversely affect our results of operations. +As part of the Budget Control Act passed in August 2011 to extend the federal debt limit and reduce government spending, $1.2 trillion in automatic spending cuts (known as sequestration) were implemented in 2013. The sequestration requires a 2% cut in Medicare payments for all services, including our diagnostic tests, which, due to subsequent legislative amendments to the statute, will remain in effect through 2024 unless Congressional action is otherwise taken. Government research funding has also been reduced as a result of the sequestration. On January 2, 2013, the American Taxpayer Relief Act of 2012 also was signed into law, which, among other things, further reduces Medicare payments to providers such as hospitals, imaging centers and cancer treatment centers, and increases the statute of limitations period for the government to recover overpayments to providers from three to five years. +Such reductions in government health care spending or research funding could result in reduced demand for our products or additional pricing pressure. Further, there is ongoing uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S. government default on its debt could have broad macroeconomic effects that could, among other things, raise our borrowing costs. Any future shutdown of the federal government or failure to enact annual appropriations could also have a material adverse impact on our business. +Revenues for our Life Science segment may be impacted by customer concentrations and buying patterns. +Our Life Science segment’s revenues from three diagnostic manufacturing customers were 27% and 26% of the Life Science segment’s total revenues for fiscal 2020 and fiscal 2019, respectively, with such percentage for fiscal 2019 being concentrated in two of the customers. Sales to these three diagnostic manufacturing customers comprised 14% and 8% of total consolidated revenues for fiscal 2020 and fiscal 2019, respectively. In addition, in excess of 10% of the segment’s total revenues has historically been concentrated among a number of other significant customers. Any significant alteration of buying patterns from these customers could adversely affect our period over period revenues and results of operations. +We expect to face increased competition resulting from expiration of our H. pylori patents. +The patents for our stool antigen +H. pylori +products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our stool antigen +H. pylori +products, high margin products which represent approximately 10% of our total revenues, to continue to increase, as we currently are one of only four companies that market +FDA-cleared +tests to detect +H. pylori +antigen in stool samples in the U.S. market, one of which is DiaSorin Inc., with whom we have entered a strategic collaboration agreement to sell +H. pylori +tests. At present, we are also aware of at least one other company that has commenced clinical trials of +H. pylori +products in the U.S. Such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We have executed on a number of measures to address competitive pressures in coming off patent including: (i) in October 2018, we entered into a strategic collaboration with DiaSorin to sell +H. pylori +tests; (ii) we have executed multi-year supply agreements with our two largest reference laboratory customers for +H. pylori +tests to secure volume, albeit at lower selling prices; and (iii) upon FDA clearance in March 2020, we launched Curian HpSA, our first assay on the new Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the acquisition of the Exalenz BreathID platform to combat competitive pressures, as we believe that we are now the only company with +FDA-cleared, +non-invasive +assays for both stool antigen and urea breath samples, allowing physicians a choice in test format from one supplier. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +- 14 - +Table of Contents +We depend on international revenues, and our financial results may be adversely impacted by foreign currency, regulatory or other developments affecting international markets. +We sell products and services into approximately 70 countries. For fiscal 2020, approximately one third of our consolidated revenues were transacted in currencies other than the U.S. dollar. We are subject to the risks associated with fluctuations in the exchange rates for the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and New Israeli shekel. We are also subject to other risks associated with international operations, including longer customer payment cycles, trade wars, increased tariffs, requirements for export licenses, instability of foreign governments, and governmental requirements with respect to the importation and distribution of medical devices and immunodiagnostic and molecular biology reagents, all of which may vary by country. +New tariffs and other trade measures could adversely affect our financial results. +The current U.S. administration has expressed strong concerns about imports from countries that it perceives as engaging in unfair trade practices, and it is possible the administration could impose import duties or other restrictions on products, components or raw materials sourced from those countries, which may include countries from which we import components or raw materials. We are currently not aware of any new import duties imposed on our products. Any such new import duties or restrictions could have a material adverse effect on our business, results of operations or financial condition. Moreover, these new tariffs, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. Certain foreign governments have instituted or are considering imposing trade sanctions on certain U.S. goods. +Other foreign governments are considering the imposition of sanctions that will deny U.S. companies access to critical raw materials. A “trade war” of this nature or other governmental actions related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, customers, manufacturers, suppliers and/or the economic environments in which we operate and, thus may adversely impact our businesses. In addition, there may be changes to existing trade agreements, like the North American Free Trade Agreement (“NAFTA”) and its anticipated successor agreement, the U.S.-Mexico-Canada Agreement (“USMCA”), which is still subject to approval by the United States, Mexico and Canada, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the United States, particularly tariffs on products manufactured in Mexico, among other possible changes. It remains unclear what the U.S. administration or foreign governments will or will not do with respect to tariffs, NAFTA, USMCA or other international trade agreements and policies. Any changes to NAFTA (or subsequent trade agreements) could impact our operations in countries where we manufacture or sell products, or source components or materials, which could adversely affect our operating results and our business. +Risks Affecting our Manufacturing Operations +We are subject to comprehensive regulation, and our ability to earn profits may be restricted by these regulations. +Medical device diagnostics is a highly regulated industry. We cannot provide assurance that we will be able to obtain necessary governmental clearances or approvals, or timely clearances or approvals, to market future products in the United States and other countries. Costs and difficulties in complying with laws and regulations administered by the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the U.S. Department of Commerce, the U.S. Drug Enforcement Agency, the Centers for Disease Control, or other regulators can result in unanticipated expenses and delays, and interruptions to the sale of new and existing products. +Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and costs of approvals difficult to predict. Failure to comply with these regulations can result in delays in obtaining authorization to sell products, seizure or recall of products, suspension or revocation of authority to manufacture or sell products, and other civil or criminal sanctions. +- 15 - +Table of Contents +If we or our third-party vendors fail to comply with FDA regulations relating to the manufacturing of our products or any component part, we may be subject to fines, injunctions and penalties, and our ability to commercially distribute and sell our products may be negatively impacted. +Our diagnostics manufacturing facilities, and the manufacturing facilities of any of our third-party diagnostic component manufacturers or critical suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”), which sets forth minimum standards for the procedures, execution and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage, and shipping of the products we sell, and related regulations, including Medical Device Reporting (“MDR”) regulations regarding reporting of certain malfunctions and adverse events potentially associated with our products. The FDA may evaluate our compliance with the QSR, MDR and other regulations, among other ways, through periodic announced or unannounced inspections which could disrupt our operations and interrupt our manufacturing. If in conducting an inspection of our manufacturing facilities, or the manufacturing facilities of any of our third-party component manufacturers or critical suppliers, an FDA investigator observes conditions or practices believed to violate the QSR, the investigator may document their observations on a Form FDA 483 that is issued at the conclusion of the inspection. A manufacturer that receives an FDA 483 may respond in writing and explain any corrective actions taken in response to the inspectional observations. The FDA will typically review the facility’s written response and may +re-inspect +to determine the facility’s compliance with the QSR and other applicable regulatory requirements. Failure to take adequate and timely corrective actions to remedy objectionable conditions listed on an FDA 483 could result in the FDA taking administrative or enforcement actions. Among these may be the FDA’s issuance of a Warning Letter to a manufacturer, which informs it that the FDA considers the observed violations to be of “regulatory significance” that, if not corrected, could result in further enforcement action. +FDA enforcement actions, which include seizure, injunction, criminal prosecution, and civil penalties, could result in total or partial suspension of a facility’s production and/or distribution, product recalls, fines, suspension of the FDA’s review of product applications, and/or the FDA’s issuance of adverse publicity. Thus, an adverse inspection could force a shutdown of our manufacturing operations or a recall of our products. Adverse inspections could also delay FDA approval of our products and could have an adverse effect on our production, sales and profitability. +We and any of our third-party vendors may also encounter other problems during manufacturing including failure to follow specific protocols and procedures, equipment malfunction, and environmental factors, any of which could delay or impede our ability to meet demand. The manufacture of our product also subjects us to risks that could harm our business, including problems relating to our facilities and errors in manufacturing components that could negatively affect the efficacy or safety of our products or cause delays in shipment of our products. Any interruption or delay in the manufacture of the product, or any of its components could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products, which could, therefore, have a material adverse effect on our business, financial condition and results of operations. +On June 29, 2017, the FDA, in connection with its Safety Notification related to Magellan (whom we acquired in March 2016) and its lead testing systems for venous blood samples, issued its Form 483, Inspectional Observations, to Magellan. This was followed by the FDA issuing a Warning Letter related to the matter on October 23, 2017. During October 2019, the FDA conducted a +follow-up +inspection of Magellan’s manufacturing facility. In connection with this +follow-up +inspection, the FDA issued five Form 483 observations. Over the last year, we have submitted a number of written responses to the FDA regarding the five Form 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64 (d) (3). The Warning Letter issued in October 2017 remains outstanding, pending a future FDA inspection. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA. +Additionally, as set forth in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we are cooperating with the DOJ in this matter. We maintain rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements, and are working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. We have executed tolling agreements to extend the statute of limitations. We cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on Meridian. +- 16 - +Table of Contents +See a more detailed discussion of these matters within MD&A on page 28. +Significant interruptions in production at our principal manufacturing facilities and/or third-party manufacturing facilities would adversely affect our business and operating results. +Products and services manufactured at facilities we own or lease comprised a majority of our revenues. Our global supply of these products and services is dependent on the uninterrupted and efficient operation of these facilities. In addition, we currently rely on a small number of third-party manufacturers to produce certain of our diagnostic products and product components. The operations of our facilities or these third-party manufacturing facilities could be adversely affected by power failures, or natural or other disasters such as earthquakes, floods, tornadoes or terrorist threats. Although we carry insurance to protect against certain business interruptions at our facilities, there can be no assurance that such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all. Any significant interruption in the Company’s or a third-party supplier’s manufacturing capabilities could materially and adversely affect our operating results. +We depend on sole-source suppliers for certain critical raw materials, components and finished products. A supply interruption could adversely affect our business. +Raw Materials and Components +Our diagnostic products are made from a wide variety of raw materials that are biological or chemical in nature, and that generally are available from multiple sources of supply. We sole-source certain raw materials and components, which makes it time consuming and costly to switch raw materials and components in +FDA-cleared +products. If certain suppliers fail to supply required raw materials or components, we will need to secure other sources which may require us to conduct additional development and testing and obtain regulatory approval. These activities require significant time and resources, and there is no assurance that new sources will be secured or regulatory approvals, if necessary, will be obtained. +We utilize third-party manufacturers for certain of our instrumentation. One third party manufactures our proprietary Alethia Incubator/Reader (instrument), a component of our Alethia molecular system, and an additional third party manufactures our Curian instrument. These instruments are manufactured exclusively for Meridian according to our specifications. While other manufacturers for these types of instruments are available, we source each instrument solely from one manufacturer to limit the costs involved in clearing the system for marketing in the United States. If these third-party manufacturers fail to supply us with instruments, we will need to secure another manufacturer, and it may take as long as 12 months to transfer instrument manufacturing. An interruption in the manufacturing of these instruments could have a material adverse effect on our operating results. +Additionally, one third party manufactures a certain reagent for use with our Alethia assays. While alternative suppliers exist, we elect to utilize this third party exclusively in order to maintain consistency in our materials, which is critical in complying with FDA regulatory requirements. An interruption in the manufacturing of these reagents could have a material adverse effect on our operating results. +Finished Products +We outsource the manufacturing for certain finished diagnostic products to third parties. A disruption in the supply of these finished products could have a material adverse effect on our business until we find another supplier or bring manufacturing +in-house. +Four products manufactured exclusively for us by two separate and independent companies accounted for 7%, 11% and 11% of consolidated revenues in fiscal 2020, 2019 and 2018, respectively. Meridian owns all rights and title to the FDA 510(k) clearances for these products. +Activities undertaken by Meridian to reduce the risk of these sole-supplier arrangements include maintaining adequate inventory levels, supplier qualification procedures, supplier audits, site visits, and frequent communication. Additionally, we have identified potential alternate suppliers. +- 17 - +Table of Contents +Our ability to meet future customer demand for selected products is dependent upon our ability to successfully manage our manufacturing capacity. +To manage our anticipated future growth effectively, it may become necessary for us to enhance our manufacturing and supply chain capabilities, infrastructure and operations, information technology infrastructure, and financial and accounting systems and controls. Organizational growth and +scale-up +of operations could strain our existing managerial, operational, financial, and other resources. If our management is unable to effectively prepare for our expected future growth, our expenses may increase more than anticipated, our revenue could grow more slowly than expected, and we may not be able to achieve our commercialization, profitability, or product development goals. Our failure to effectively implement the necessary processes and procedures and otherwise prepare for our anticipated growth could have a material adverse effect on our future financial results and condition. +Risks Related to Intellectual Property and Product Liability +We may be unable to protect or obtain proprietary rights that we utilize or intend to utilize. +In developing and manufacturing our products, we employ a variety of proprietary and patented technologies. In addition, we have licensed, and expect to continue to license, various complementary technologies and methods from academic institutions and public and private companies. We cannot provide assurance that the technologies that we own or license provide protection from competitive threats or from challenges to our intellectual property. In addition, we cannot provide assurances that we will be successful in obtaining and retaining licenses, or proprietary or patented technologies, in the future. +Product infringement claims by other companies could result in costly disputes and could limit our ability to sell our products. +Litigation over intellectual property rights is prevalent in the diagnostic industry. As the market for diagnostics continues to grow and the number of participants in the market increases, we may increasingly be subject to patent infringement claims. It is possible that a third party may claim infringement against us. If found to infringe, we may attempt to obtain a license to such intellectual property; however, we may be unable to do so on favorable terms, or at all. Additionally, if our products are found to infringe on third-party intellectual property, we may be required to pay damages for past infringement and lose the ability to sell certain products, causing our revenues to decrease. Any substantial loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business. +If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease sales of our products. +The testing, manufacturing and marketing of medical diagnostic products involves an inherent risk of product liability claims. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease sales of our products. We currently carry product liability insurance at a level we believe is commercially reasonable, although there is no assurance that it will be adequate to cover claims that may arise. In certain customer contracts, we indemnify third parties for certain product liability claims related to our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications. In addition, a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injury and otherwise. Any substantial underinsured loss resulting from such a claim could have a material adverse effect on our profitability, and the damage to our reputation in the industry could have a material adverse effect on our business. +- 18 - +Table of Contents +Risks Related to Our Common Stock +The authority of our board to issue preferred stock and the effects of certain provisions of Ohio corporation law may discourage takeover bids. +Our board of directors has the authority to issue up to 1,000 shares of undesignated preferred stock and to determine the rights, preferences, privileges and restrictions, including voting rights, of such shares without any future vote or action by the shareholders. The issuance of preferred stock under certain circumstances could have the effect of delaying or preventing a change in control of our company. Ohio corporation law contains provisions that may discourage takeover bids for our company that have not been negotiated with the board of directors. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, sales of substantial amounts of shares in the public market could adversely affect the market price of our common stock and our ability to raise additional capital at a price favorable to us. +The market price of our common stock may be volatile and fluctuate significantly, which could result in substantial losses for stockholders and subject us to litigation. +The market price of our common stock may be subject to significant fluctuations due to numerous factors, including but not limited to the risks described in this “Risk Factors” section. In addition, the stock market in general, the NASDAQ Global Market and the market for diagnostics companies in particular may experience a loss of investor confidence. A loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations. These broad market and industry factors may materially harm the market price of our common stock and expose us to securities class-action litigation. Class-action litigation, even if unsuccessful, could be costly to defend and divert management’s attention and resources, which could further materially harm our financial condition and results of operations. +Our business could be negatively impacted as a result of shareholder activism, an unsolicited takeover proposal or a proxy contest. +In recent years, proxy contests and other forms of stockholder activism have been directed against numerous public companies. If a proxy contest or an unsolicited takeover proposal is made with respect to us, we could incur significant costs in defending our company, which would have an adverse effect on our financial results. Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of our company. Such proposals may disrupt our business and divert the attention of our management and employees, and any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, all of which could adversely affect our business. In addition, actions of activist stockholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. +There can be no assurance that we will resume the payment of dividends. +The declaration, amount and timing of the Company’s dividends are subject to capital availability and determinations by our board of directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws, including the applicable provisions of Ohio law, and our agreements applicable to the declaration and payment of cash dividends. We suspended the payment of quarterly cash dividends effective during the fiscal 2019 second quarter. Any action to resume the payment of dividends will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, results of operations, financial condition and other factors beyond our control that our board of directors may deem relevant. Ongoing suspension of our dividend payments could have a negative effect on our stock price. +General Risk Factors +Intense competition could adversely affect our profitability. +The markets for our products and services are characterized by substantial competition and rapid change. Hundreds of companies around the world supply diagnostic tests and immunoassay and molecular reagents. These companies range from multinational health care entities, for which diagnostics is one line of business, to small +start-up +companies. Many of our competitors have significantly greater financial, technical, manufacturing and marketing resources than we do. We cannot provide assurance that our products and services will be able to compete successfully with the products and services of our competitors. +- 19 - +Table of Contents +We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies in the United States, and failure to comply with these laws could harm our business and the price of our common stock. +As a public company listed in the United States, we incur significant legal, accounting and other expenses. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC, the Public Company Accounting Oversight Board (“PCAOB”) and the NASDAQ Global Select Market, may increase our legal and financial compliance costs and/or make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If we fail to comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings against us, and our business may be harmed. +Our business could be negatively affected if we are unable to attract, hire and retain key personnel. +Our future success depends on our continued ability to attract, hire and retain highly qualified personnel, including our executive officers and scientific, technical, sales and marketing employees, and their ability to manage growth successfully. If such key employees were to leave and we were unable to obtain adequate replacements, our operating results could be adversely affected. +Our bank credit agreement imposes restrictions with respect to our operations. +Our bank credit agreement contains a number of financial covenants that require us to meet certain financial ratios and tests. If we fail to comply with the obligations in the credit agreement, we would be in default under the credit agreement. If an event of default is not cured or waived, it could result in acceleration of any indebtedness under our credit agreement, which could have a material adverse effect on our business. At September 30, 2020, we had $68,824 outstanding on a $160,000 bank revolving credit facility. +Changes in the method of determining London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt. +Amounts drawn under our credit facility may bear interest rates in relation to LIBOR, depending on our selection of repayment options. On July 27, 2017, the Financial Conduct Authority (“FCA”) in the U.K. announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Broad Treasury Financing Rate, calculated with a broad set of short-term repurchase agreements backed by treasury securities. If LIBOR ceases to exist, we may need to renegotiate the credit facility and may not be able to do so with terms that are favorable to us. The overall financial market may be disrupted as a result of the +phase-out +or replacement of LIBOR. Disruption in the financial market or the inability to renegotiate the credit facility with favorable terms could have a material adverse effect on our business, financial position, and operating results. +We face risks related to global economic conditions. +We currently generate significant operating cash flows, which combined with access to the credit markets, provides us with discretionary funding capacity for research and development and other strategic activities. However, as an enterprise with global operations and markets, our operations and financial performance are in part dependent upon global economic conditions, and we could be negatively impacted by a global, regional or national economic crisis, including sovereign risk in the event of deterioration in the credit worthiness of or a default by local governments. We are particularly susceptible to the economic conditions in countries where government-sponsored health care systems are the primary payers for health care, including those countries within the European Union that are reducing their public expenditures in an effort to achieve cost savings. The uncertainty in global economic conditions poses a risk to the overall economy that could impact demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. As such, if global economic conditions deteriorate significantly, our business could be negatively impacted, including such areas as reduced demand for our products from a slow-down in the general economy, supplier or customer disruptions resulting from tighter credit markets, and/or temporary interruptions in our ability to conduct +day-to-day +transactions through our financial intermediaries involving the payment to or collection of funds from our customers, vendors and suppliers. While +to-date +such factors have not had a significant negative impact on our results or operations, we continue to monitor and plan for the potential impact of these global economic factors. +- 20 - +Table of Contents +In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum. The U.K. is currently in a transition period relating to its exit from the European Union (“Brexit”). In January 2020, the U.K. and the European Union ratified a Withdrawal Agreement that set out the transition period of eleven months, from February 1, 2020 until December 31, 2020, during which the final terms of the U.K.’s departure would be negotiated. Although the Withdrawal Agreement ensures that a +“no-deal” +or “cliff-edge” Brexit was avoided on January 31, 2020, there is no certainty that a similar effect will be avoided at the end of 2020. +The ongoing uncertainty on the final terms of the withdrawal could lead to economic stagnation until an ultimate resolution with respect to Brexit occurs. If the U.K. and the European Union are unable to negotiate acceptable agreements during the transition period or if other European Union Member States pursue withdrawal, it will likely have an adverse impact on labor and trade in addition to creating further short-term uncertainty and currency volatility. In the absence of future trade deals, the U.K.’s trade with the European Union and the rest of the world may be subject to tariffs and duties set by the World Trade Organization. Additionally, the movement of goods and personnel between the U.K. and the remaining member states of the European Union will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. Even if final terms of the U.K.’s withdrawal from the European Union are approved, the withdrawal could result in significant changes to the trading relationship between the U.K. and the European Union. These changes to the trading relationship between the U.K and the European Union would likely result in increased cost of goods imported into and exported from the U.K. and may decrease the profitability of our operations. Additional currency volatility could drive a weaker British pound, which could increase the cost of goods imported into the U.K. and may decrease the profitability of our operations. A weaker British pound versus the U.S. dollar may also cause local currency results of our operations to be translated into fewer U.S. dollars during a reporting period. With a range of outcomes still possible, the impact from Brexit remains uncertain and will depend, in part, on the final outcome of tariff, trade, regulatory and other negotiations. +One or more cybersecurity incidents may adversely impact our financial condition, results of operations and reputation. +Our operations involve the use of multiple systems that process, store and transmit sensitive information about our customers, suppliers, employees, financial position, operating results and strategies. We face global cybersecurity risks and threats on a continual and ongoing basis, which include, but are not limited to, attempts to access systems and information, computer viruses, or +denial-of-service +attacks. These risks and threats range from uncoordinated individual attempts to sophisticated and targeted measures. While we are not aware of any material cyber-attacks or breaches of our systems to date, we have and continue to implement measures to safeguard our systems and information and mitigate potential risks, including employee training around phishing, malware and other cyber risks, but there is no assurance that such actions will be sufficient to prevent cyber-attacks or security breaches that manipulate or improperly use our systems, compromise sensitive information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events, including breaches of our security measures or those of our third-party service providers, could negatively impact our reputation and our competitive position and could result in litigation with third parties, regulatory action, loss of business due to disruption of operations and/or reputational damage, potential liability and increased remediation and protection costs, any of which could have a material adverse effect on our financial condition and results of operations. In an effort to mitigate the financial impact such an attack might have on the Company, we maintain cyber liability insurance coverage. However, such coverage may be insufficient to cover the full impact of a cyber-attack. Additionally, as cybersecurity risks become more sophisticated, we may need to increase our investments in security measures which could have a material adverse effect on our financial condition and results of operations. +Natural disasters, war and other events could adversely affect our future revenues and operating income. +Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the United States and other governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the United States and in areas outside of the United States in which we operate. These events could result in decreased demand for our products, adversely affect our manufacturing and distribution capabilities, or increase the costs for, or cause interruptions in, the supply of materials from our suppliers. +- 21 - +Table of Contents +ITEM 1B. +UNRESOLVED STAFF COMMENTS +None. +ITEM 2. +PROPERTIES +Our corporate offices, infectious disease Diagnostics manufacturing facility, and infectious disease Diagnostics research and development facility are located in four buildings totaling approximately 117,000 square feet on approximately seven acres of land in the Village of Newtown, a suburb of Cincinnati, Ohio. These properties are owned by us. Our blood-chemistry manufacturing and research and development operations are located in an approximately 30,000 square foot leased facility in Billerica, Massachusetts; our +PCR-based +molecular manufacturing and research and development operations are located in an approximately 26,000 square foot leased facility in Quebec City, Canada; and our BreathID urea breath test manufacturing and research and development operations are located in an approximately 8,000 square foot leased facility in Modi’in, Israel. We also operate a Diagnostics sales and distribution center near Milan, Italy in an approximately 18,000 square foot building. This facility is owned by our wholly owned Italian subsidiary, Meridian Bioscience Europe s.r.l. We also rent office space in Paris, France and +Braine-l’Alleud, +Belgium for sales and administrative functions, and space in Manasquan, New Jersey and Changzhou, China to house BreathID technical service and repair functions. +Our Life Science operations are conducted in several facilities in Memphis, Tennessee; Boca Raton, Florida; London, England; Luckenwalde, Germany; Sydney, Australia; and Beijing, China. Our facility in Memphis, Tennessee consists of two buildings totaling approximately 44,000 square feet and is owned by us. Our leased facility in Boca Raton, Florida contains approximately 7,500 square feet of manufacturing space. Following are details of our other Life Science facilities, all of which are leased: London – approximately 19,500 square feet of sales, warehouse, distribution, research and development, manufacturing and administrative office space; Luckenwalde – approximately 13,000 square feet of sales, warehouse and manufacturing space; Sydney – approximately 3,000 square feet of sales and warehouse space; Beijing – less than 1,000 square feet of sales and business development space. +ITEM 3. +LEGAL PROCEEDINGS +We are a party to various litigation matters that we believe are in the normal course of business. Aside from the matters discussed below, the ultimate resolution of these matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows, and no material provision has been made in the accompanying Consolidated Financial Statements for these matters. +On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. The Company has executed tolling agreements to extend the statute of limitations. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $2,035, $1,585 and $775 of expense for attorneys’ fees related to this matter is included within the accompanying Consolidated Statements of Operations for fiscal 2020, 2019 and 2018, respectively. See “Update on Lead Testing” section within MD&A on page 28. +- 22 - +Table of Contents +ITEM 4. +MINE SAFETY DISCLOSURES +Not applicable. +PART II. +ITEM 5. +MARKET FOR REGISTRANT’S COMMON +EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES +Refer to “Note About Forward-Looking Statements” following the Index in front of this Form +10-K +and Item 1A “Risk Factors” on pages 11 through 21 of this Annual Report. +Market Information +Our common stock trades on the NASDAQ Global Select Market under the symbol VIVO. +Holders of our Common Stock +As of September 30, 2020, there were approximately 570 holders of record and approximately 18,280 beneficial owners of our common shares. +Dividends +“Quarterly Financial Data (Unaudited)” relating to our dividends in Note 12 of the Consolidated Financial Statements are incorporated herein by reference. +Effective during the second quarter of fiscal 2019, the Company suspended the payment of its quarterly cash dividend, which had previously been established at an indicated annual cash dividend rate of $0.50 per share for each of fiscal 2019 and 2018. The dividend was suspended as part of the Company’s regular evaluation of its capital allocation, with the action taken in order to deploy cash into new product development activities and to preserve capital resources and liquidity for general corporate purposes. Any declaration and amount of dividends will be determined by the board of directors in its discretion based upon its evaluation of earnings, cash flow requirements, business developments and opportunities, and any other factors the board of directors determines are relevant to its evaluation. We paid dividends of $0.25 and $0.50 per share in fiscal 2019 and 2018, respectively. +Stock Total Return Performance +The graph below matches the cumulative +5-Year +total return of holders of Meridian Bioscience, Inc.’s common stock with the cumulative total returns of the NASDAQ Composite index and a customized peer group of eight companies that includes: +Bio-Rad +Laboratories, Inc., bioMerieux S.A., GenMark Diagnostics, Inc., Luminex Corporation, Myriad Genetics, Inc., OraSure Technologies, Inc., Quidel Corporation and Trinity Biotech Plc. We selected the companies in the customized peer group based on various considerations, including, without limitation, industry classifications, the extent to which certain companies may engage in businesses in which we engage, and the extent to which we and/or our investors consider certain companies to be direct or indirect competitors. The graph assumes that the value of the investment in our common stock, in the index, and in the peer group (including reinvestment of dividends) was $100 on September 30, 2015 and tracks it through September 30, 2020. +- 23 - +Table of Contents +ITEM 6. +SELECTED FINANCIAL DATA +Income Statement Information (Amounts in thousands, except per share data) +For the Year Ended September 30, +2020 +2019 +2018 +2017 +2016 +Net revenues +$ +253,667 +$ +201,014 +$ +213,571 +$ +200,771 +$ +196,082 +Gross profit +156,248 +118,728 +131,033 +124,833 +127,787 +Operating income +61,324 +32,699 +31,584 +37,382 +51,378 +Net earnings +46,186 +24,382 +23,849 +21,557 +32,229 +Basic earnings per share +$ +1.08 +$ +0.57 +$ +0.56 +$ +0.51 +$ +0.77 +Diluted earnings per share +$ +1.07 +$ +0.57 +$ +0.56 +$ +0.51 +$ +0.76 +Cash dividends declared per share +$ +— +$ +0.250 +$ +0.500 +$ +0.575 +$ +0.800 +Book value per share +$ +5.75 +$ +4.47 +$ +4.14 +$ +4.02 +$ +3.95 +Balance Sheet Information +As of September 30, +2020 +2019 +2018 +2017 +2016 +Current assets +$ +162,190 +$ +144,761 +$ +139,053 +$ +133,875 +$ +126,791 +Current liabilities +52,524 +20,914 +24,173 +22,887 +22,571 +Total assets +405,261 +325,478 +251,377 +249,777 +252,028 +Long-term debt obligations +68,824 +75,824 +50,180 +54,647 +58,360 +Shareholders’ equity +247,629 +190,967 +175,418 +169,585 +166,472 +- 24 - +Table of Contents +ITEM 7. +MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL +CONDITION AND RESULTS OF OPERATIONS +Refer to “Note About Forward-Looking Statements” following the Index in front of this Form +10-K +and Item 1A “Risk Factors” on pages 11 through 21 of this Annual Report. +In the discussion that follows, all dollar amounts are in thousands (both tables and text), except per share data +. +The purpose of Management’s Discussion and Analysis is to provide an understanding of Meridian’s financial condition, changes in financial condition and results of operations. This discussion should be read in conjunction with the financial statements and notes. +Impact of +COVID-19 +Pandemic +In December 2019, the +SARS-CoV-2 +virus emerged in Wuhan, China and spread to other parts of the world. In March 2020, the World Health Organization (“WHO”) designated +COVID-19 +(the disease caused by +SARS-CoV-2) +a global pandemic. Governments around the world implemented lockdown and +shelter-in-place +orders, requiring many +non-essential +businesses to shut down operations throughout a substantial portion of the last five months of our fiscal year, some of which remain in effect as of the date of this filing. Our business, however, was deemed “essential” and we have continued to operate, manufacture and distribute products to customers globally. We have developed a comprehensive plan that enables us to maintain operational continuity with an emphasis on manufacturing, product distribution and new product development during this crisis. We continually assess +COVID-19 +related developments and adjust risk mitigation planning and business continuity activities in real-time as needed. +The +COVID-19 +pandemic has had both positive and negative effects on our businesses. Our Life Science segment’s products were well positioned to respond to IVD manufacturers’ needs for reagents for molecular, rapid antigen and serology tests. Consequently, our Life Science segment grew its revenues over 100% in fiscal 2020 and delivered record operating income and margin, demonstrating what this business could achieve at a much larger scale. Our Diagnostics segment, on the other hand, reported decreased revenues in our third and fourth fiscal quarters as health systems focused on +SARS-CoV-2 +testing over traditional infectious disease and blood-chemistry testing. However, we did see a significant recovery in our Diagnostics business in our fourth fiscal quarter compared to the third fiscal quarter (up 38%). +Employee Safety +We have implemented a work-from-home process for employees whose +on-site +presence is designated as +non-essential +to the ongoing functions of our manufacturing sites, distribution centers, and new product development facilities. We continue to utilize this work-from-home process as needed on a +site-by-site +basis. We also implemented enhanced cleaning and sanitizing procedures and provided additional personal hygiene supplies at all of our sites. We implemented policies for employees to adhere to the Centers for Disease Control and Prevention (“CDC”) guidelines on social distancing, and similar guidelines by authorities outside the United States, and any employees experiencing any symptoms of +COVID-19 +are required to stay home and seek medical attention. Any employee who tests positive for +COVID-19 +is required to quarantine and is not allowed to return to our facilities without a physician’s release, including a negative active infection test result. Access to our facilities by outside persons not critical to continuing our operations continues to be limited. To date, we have been able to manufacture and distribute products globally, and all of our sites continue to operate without interruption. As the pandemic continues to spread, along with continuing governmental restrictions which vary by locale and jurisdiction, there is an increased risk of employee absenteeism, which could materially impact our operations at one or more sites. To date, the steps we have taken, including our work from home processes have not materially impacted the Company’s financial reporting systems, internal controls over financial reporting or disclosure controls. +- 25 - +Table of Contents +Supply Chains +Supply chains supporting our products remain intact, providing access to sufficient inventory of the key materials needed for manufacturing. To date, delays and allocations for certain raw materials of higher demand have been limited and have not had a material impact on our results of operations. We regularly communicate with suppliers, third-party partners, customers, health care providers and government officials in order to respond rapidly to issues as they arise. The longer the current situation continues, it is more likely that we may experience some sort of interruption to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations. +Clinical Trial Delays +As a result of the pandemic, certain of our clinical trials which were underway or scheduled to begin were temporarily placed on hold. While we are seeing +“re-starts” +for such clinical trials, they are at a slower pace than normal. Such delays continue to impact our timing for filing applications for product clearances with the FDA, as well as related timing of FDA clearances of such filings. Additionally, the ongoing +COVID-19 +pandemic has and could continue to slow down our efforts to expand our product portfolio through acquisitions and distribution opportunities, impacting the speed with which we are able to bring additional products to market. +Product Demand +Our Life Science segment manufactures, markets and sells a number of molecular and immunological reagents to IVD customers, including those who are making both molecular and immunoassay +COVID-19 +tests. During the last month of our second fiscal quarter and throughout our third fiscal quarter of fiscal 2020, we experienced unprecedented demand for certain of our molecular reagents (e.g., ribonucleic acid (“RNA”) master mixes and nucleotides), and such demand continued throughout our fourth fiscal quarter, albeit at a lower level than the third quarter. Although we are unable to predict when this demand may subside, we expect revenue levels for these products to be materially higher than historical levels during at least the next twelve months. Our products are used in over 100 approved +COVID-19 +related assays around the world. COVID-related reagent revenues totaled approximately $71,500 during fiscal 2020. +Our Diagnostics segment manufactures, markets and sells a number of molecular, immunoassay, blood chemistry and urea breath tests +for various infectious diseases and blood-lead levels. We expect near-term sales volumes for a number of these assays to continue to be adversely affected by the +COVID-19 +pandemic as such assays are often used in +non-critical +care settings. The +COVID-19 +pandemic also has continued to affect our instrument placements. The launch of our Curian platform has been slower than expected as diagnostic testing sites have turned their attention to critical care testing. However, during our fourth fiscal quarter, we experienced an acceleration in Revogene placements due to the anticipated +SARS-CoV-2 +assay under the FDA’s emergency use authorization. We notified the FDA on November 13, 2020 of our intent to submit for emergency use authorization and expect to do so in late November or early December. During our fourth fiscal quarter, Diagnostics sales volumes recovered, up 38% over our third fiscal quarter. However, no assurances can be made that this positive trend will continue. +Asset Impairment Review +Considering the economic impacts of +COVID-19, +we performed an analysis of our businesses to determine if there were triggering events that would require us to further test our long-lived assets for impairment. Based on our review, we do not believe that a triggering event exists at this time and, therefore, we believe that we will be able to realize the full value of our long-lived assets. As such, no impairments or other write-downs related to +COVID-19 +have been recorded during fiscal 2020. In addition, we performed our annual test for goodwill impairment as of June 30, 2020 by performing a qualitative assessment pursuant to ASU +2011-08 +for each reporting unit. Our qualitative assessment indicated that it is not more likely than not that the fair values of our reporting units are less than their carrying values. Accordingly, a quantitative impairment test for goodwill was not required. +Access to Capital +The impacts of +COVID-19 +have adversely affected the ability of many companies to access capital and liquidity on favorable terms or at all. As of September 30, 2020, the outstanding debt balance on the Company’s revolving credit facility was $68,824, leaving $91,176 of available borrowing capacity. In addition, positive cash flows from operating activities are expected to be generated over the next twelve months, which will add to cash on hand. We also maintain a shelf registration statement on file with the Securities and Exchange Commission. The Company believes these resources will provide sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months and expects to be in compliance with its financial covenants during this same period. However, given the unusual nature of the +COVID-19 +pandemic and the rapidly changing environment, we can provide no assurances in this regard and future impacts may materialize that are not currently known. +- 26 - +Table of Contents +Results of Operations +: +Fourth Quarter +Net earnings for the fourth quarter of fiscal 2020 increased 58% to $6,493, or $0.15 per diluted share, from net earnings for the fourth quarter of fiscal 2019 of $4,103, or $0.10 per diluted share. The level of net earnings in the fiscal 2020 fourth quarter were affected by several factors, including most notably the combined effects of the following (amounts presented on a +pre-tax +basis): +(i) +significantly higher revenue in the Life Science operating segment, due to supplying key molecular components and monoclonal antibodies to diagnostic test manufacturers for use in +COVID-19 +related PCR and antigen tests (up $16,905); +(ii) +higher research and development spending in the Diagnostics segment under new product development programs (up $1,886); +(iii) +increased cash-based incentive compensation tied to higher revenue and profit levels (up $1,428); +(iv) +an increase in the fair value of the earnout obligation for the acquisition of the GenePOC business (up $1,135); +(v) +decreased restructuring expenses related to the business realignment and streamlining initiatives commenced in fiscal 2018 and largely completed in the first half of fiscal 2020 (down $1,071); and +(vi) +lower gains related to foreign currency (down $1,030). +Consolidated revenues for the fourth quarter of fiscal 2020 totaled $64,153, an increase of 26% compared to the fourth quarter of fiscal 2019, increasing 25% on a constant-currency basis. +Revenues for the Diagnostics segment for the fourth quarter of fiscal 2020 decreased 11% compared to the fourth quarter of fiscal 2019 (also 11% on a constant-currency basis), comprised of a 23% decrease in molecular assay products and an 8% decrease in +non-molecular +assay products. During the fourth quarter, we experienced a rebound from the previously noted impact of the +COVID-19 +pandemic on our placement of molecular assay products. This positive activity resulted in 62 net placements of our Revogene system during the fourth quarter of fiscal 2020 and a total Revogene system install base of 231 systems as of September 30, 2020. With a 294% increase in revenues from molecular reagents products and flat revenues from immunological reagents products, revenues for our Life Science segment increased 97% during the fourth quarter of fiscal 2020 compared to the fourth quarter of fiscal 2019. On a constant-currency basis, revenues for the Life Science segment increased 95%. Life Science revenues reflect a significant increase in the sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in +COVID-19 +related PCR tests. Also contributing to the record revenue levels during the quarter were sales of recombinant antigens used in +COVID-19 +antibody tests and monoclonal antibody pairs used in antigen tests. +Fiscal Year +Net earnings for fiscal 2020 increased 89% to $46,186, or $1.07 per diluted share, from net earnings for fiscal 2019 of $24,382, or $0.57 per diluted share. The level of net earnings in the fiscal 2020 fourth quarter were affected by several factors, including most notably the combined effects of the following (amounts presented on a +pre-tax +basis): +(i) +significantly higher revenue in the Life Science operating segment, due to supplying key molecular components, monoclonal antibodies and recombinant antigens to diagnostic test manufacturers for use in +COVID-19 +related PCR, antigen and antibody tests (up $68,203); +(ii) +higher research and development spending in the Diagnostics segment under new product development programs (up $6,909); +(iii) +increased cash-based incentive compensation tied to higher revenue and profit levels (up $6,325); +- 27 - +Table of Contents +(iv) +increased intangible asset amortization, primarily resulting from purchase accounting amortization related to the acquisitions of Exalenz and the GenePOC business in April 2020 and June 2019, respectively (up $3,413); +(v) +increased acquisition-related costs in connection with the fiscal 2020 Exalenz transaction, as compared to those related to the GenePOC transaction in fiscal 2019 (up $2,082); +(vi) +a net decrease in the fair value of the earnout obligation for the acquisition of the GenePOC business (down $6,293); and +(vii) +decreased restructuring expenses related to the business realignment and streamlining initiatives commenced in fiscal 2018 (down $2,152). +Consolidated revenues for fiscal 2020 totaled $253,667, an increase of 26% compared to fiscal 2019, increasing 27% on a constant-currency basis. +Revenues for the Diagnostics segment decreased 11% in fiscal 2020 compared to fiscal 2019 (also 11% on a constant-currency basis), comprised of a 17% decrease in molecular assay products and a 10% decrease in +non-molecular +assay products. Considering the impact of the +COVID-19 +pandemic on the placement of our molecular assay products throughout the year and the recent rebound in such activity, we placed approximately 170 Revogene systems during fiscal 2020, resulting in a total Revogene system install base of 231 systems as of September 30, 2020. With a 237% increase in revenues from molecular reagents products and a 32% increase in revenues from immunological reagents products, revenues for our Life Science segment increased 106% during fiscal 2020 compared to fiscal 2019. On a constant-currency basis, revenues for the Life Science segment increased 107%. Life Science revenues reflect a significant increase in the sales of key molecular components such as RNA master mixes and deoxyribonucleotide triphosphates (“dNTPs”) to diagnostic test manufacturers for use in +COVID-19 +related PCR tests. Also contributing to the record revenue levels during the year were sales of recombinant antigens used in +COVID-19 +antibody tests and monoclonal antibody pairs used in antigen tests. +Update on Lead Testing +As described in Item 3. “Legal Proceedings”, on April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and we continue to cooperate with the DOJ in this matter, including responding to additional information requests. We have executed tolling agreements to extend the statute of limitations. +Magellan submitted 510(k) applications in December 2018, seeking to reinstate venous blood sample-types for its LeadCare +® +II, LeadCare +® +Plus +™ +and LeadCare Ultra +® +testing systems. In the second fiscal quarter of 2019 the FDA informed Magellan that each of these 510(k) applications had been put on Additional Information hold. On July 15, 2019, we provided responses to the FDA’s requests for Additional Information. These 510(k) applications have since expired and are no longer under FDA review. Further, while Magellan’s LeadCare testing systems remain cleared for marketing by the FDA and permitted for use with capillary blood samples, the FDA advised that it has commissioned a third-party study of Magellan’s LeadCare testing systems using both venous and capillary blood samples. According to the FDA, the results of the field study will be used in conjunction with other information to determine whether further action by the FDA or the Centers for Disease Control and Prevention is necessary to protect the public health. Meridian intends to fully cooperate with the FDA as the third-party study is completed. +During October 2019, the FDA performed a +follow-up +inspection of Magellan’s manufacturing facility. The FDA issued five Form FDA 483 observations. On March 18, 2020, we participated in a regulatory meeting with the FDA at the FDA’s request to further discuss the Form FDA 483 observations and our remediation efforts. Over the last year, we have submitted a number of written responses to the FDA regarding the five Form 483 observations issued in the October 2019 inspection, and have worked diligently to execute a remediation plan. During October 2020, the FDA issued Establishment Inspection Reports which closed out the inspections from June 2017 and October 2019 under 21 C.F.R.20.64 (d) (3). The Warning Letter issued in October 2017 remains outstanding, pending a future FDA inspection. While we remain committed to strengthening Magellan’s quality system and ensuring that all aspects of the system are in full compliance, we can provide no assurance that our remediation efforts will be successful to a degree acceptable by the FDA. +- 28 - +Table of Contents +In the course of remediation, we may encounter additional matters that warrant notifications to the FDA and/or customers regarding the use of our products. At this time, we do not believe that any such notifications would impact the ability to use the LeadCare systems with capillary blood samples. While we remain confident in the performance of the Magellan LeadCare testing systems using capillary samples, we do not expect that the FDA will reinstate our venous blood claims. We can provide no assurance that the ongoing investigation and study of the DOJ and FDA, respectively, or future exercise of their respective enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of federal laws that could lead to enforcement actions, proceedings or litigation, and/or the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, injunctions, settlements or changes to our business practices, product offerings or operations that could have a material adverse effect on our business, financial condition or results of operations; or eliminate altogether our ability to operate our lead testing business on terms substantially similar to those on which we currently operate. +REVENUE OVERVIEW +Below are analyses of the Company’s revenue, by reportable segment, provided for each of the following: +- By Geographic Region +- By Product Platform/Type +Revenue Overview - By Reportable Segment & Geographic Region +Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; and manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston). These diagnostic test products are sold and distributed in the countries comprising North and Latin America (the “Americas”); Europe, Middle East and Africa (“EMEA”); and other countries outside of the Americas and EMEA (rest of the world, or “ROW”). The Life Science segment consists of manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany, and the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to further pursue growing revenue opportunities in Asia. +Revenues for the Diagnostics segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major distributors, seasonality and severity of seasonal diseases and outbreaks (including the +COVID-19 +pandemic), and foreign currency exchange rates. Revenues for the Life Science segment, in the normal course of business, may be affected from quarter to quarter by buying patterns of major IVD manufacturing customers, severity of disease outbreaks and foreign currency exchange rates. The severity of the +COVID-19 +pandemic contributed $71,500 of new revenue for our Life Science segment during fiscal 2020. +See the “Revenue Disaggregation” section of Note 1, +“Significant Accounting Policies” +of the accompanying Consolidated Financial Statements for detailed revenue disaggregation information. +Following is a discussion of the revenues generated by these product platforms/types and/or disease states: +Diagnostics Products +The acquisitions of the Revogene molecular diagnostics platform and the BreathID breath test system, the development of the Curian immunoassay platform, and the expansion of the related assay-menu for each of these platforms are important steps in addressing competitive pressures in our gastrointestinal and respiratory illness assay families. We are actively converting our existing Alethia install base to the Revogene platform for +C. difficile +, Group A +Streptococcus +(“Group A Strep”) and Group B +Streptococcus +(“Group B Strep”) assays. As previously noted, the +COVID-19 +pandemic dramatically slowed the placement of our molecular instruments and related assay products throughout the year, resulting in approximately 170 net placements of our Revogene system during fiscal 2020 and a total Revogene system install base of 231 systems as of September 30, 2020. In March 2020, we received clearance from the FDA for the Curian immunoassay diagnostics instrument and its first assay, a test for +H. pylori +antigen in stool. We believe the advantages of the Curian analyzer will help protect our existing rapid test accounts. +- 29 - +Table of Contents +Gastrointestinal Assays +During fiscal 2020, revenues from our gastrointestinal products, which include tests for +C. difficile +, +H. pylori +and certain foodborne pathogens, among others, totaled $55,040. This represents a 20% decrease from fiscal 2019 and follows a 12% decrease during fiscal 2019. We continue to face pricing and volume pressures within this product category that will carry into fiscal 2021 and beyond for our current products. Our acquisition of Exalenz and the BreathID system has strengthened our overall position in +non-invasive, +active infection testing for +H. pylori +. We continue to believe there are ongoing benefits to be realized from our partnerships with managed care companies in promoting: (i) the health and economic benefits of a test and treat strategy; (ii) changes in policies that discourage the use of traditional serology methods and promote the utilization of active infection testing methods; and (iii) physician behavior movement away from serology-based testing and toward direct antigen testing. +Contributing to the competitive pressures being faced in this product category, the patents for our stool antigen +H. pylori +products, owned by us, expired in May 2016 in the U.S. and in May 2017 in countries outside the U.S. We expect competition with respect to our stool antigen +H. pylori +products to continue to increase, and such competition may have an adverse impact on our selling prices for these products, or our ability to retain business at prices acceptable to us, and consequently, adversely affect our future results of operations and liquidity, including revenues and gross profit. We have executed on a number of measures to address competitive pressures in coming off patent including: (i) in October 2018, we entered into a strategic collaboration with DiaSorin to sell +H. pylori +tests; (ii) we have executed multi-year supply agreements with our two largest reference laboratory customers for +H. pylori +tests to secure volume, albeit at lower selling prices; and (iii) upon FDA clearance in March 2020, we launched Curian HpSA, our first assay on the new Curian platform, which we expect will help protect our existing customer base using lateral flow tests. We also expect the acquisition of the Exalenz BreathID platform to combat competitive pressures, as we believe that we are now the only company with +FDA-cleared, +non-invasive +assays for both stool antigen and urea breath samples, allowing physicians a choice in test format from a single supplier. We are unable to provide assurances that we will be successful with any strategy or that any strategy will prevent an adverse effect on our future results of operations and liquidity, including revenues and gross profit. +Respiratory Illness Assays +Revenues from sale of our respiratory illness products, which include tests for Group A Strep, Mycoplasma pneumonia, Influenza, and Pertussis, among others, remained relatively flat during fiscal 2020, totaling $26,694 and primarily reflecting the +COVID-19 +pandemic’s negative effect on demand. These revenue levels follow an 8% decrease in respiratory product revenues in fiscal 2019. +Blood Chemistry Assays +Revenues from our sale of products to test for elevated levels of lead in blood decreased 6% during fiscal 2020 to $17,534. Beginning in the latter part of March 2020, we generally experienced lower demand for our blood-lead test as a result of the +COVID-19 +pandemic. However, since the latter part of June and throughout the fourth fiscal quarter, we have seen shipments to our largest independent distributor return to +pre-pandemic +levels. During fiscal 2019, revenues from such products decreased 2%. +Life Science Products +During fiscal 2020, revenues from our Life Science segment increased 106%, with revenues from molecular reagent sales increasing 237% compared to fiscal 2019 and revenues from immunological reagent sales increasing 32%. Life Science segment revenues increased 2% in fiscal 2019, with revenues from molecular reagent sales decreasing 5% compared to fiscal 2018 and revenues from immunological reagent sales increasing 6%. Our Life Science segment’s growth was nominally impacted by the movement in currency exchange rates since fiscal 2019, with revenues increasing 107% on a constant-currency basis over fiscal 2019. The increase in revenues was primarily attributable to the increased demand for key molecular components such as RNA master mixes and dNTPs from diagnostic test manufacturers for use in +COVID-19 +related PCR tests, as well as recombinant antigens used in antibody tests and monoclonal antibodies used in antigen tests. Largely as a result of this +COVID-19 +related demand, revenue from sales into China totaled approximately $19,000 during fiscal 2020 – representing an increase of approximately 127% over fiscal 2019. COVID-related reagent revenues totaled approximately $71,500 during fiscal 2020. +- 30 - +Table of Contents +Foreign Currency +Fluctuations in foreign currency exchange rates since fiscal 2019 had an approximate $1,250 unfavorable impact on fiscal 2020 revenues; $150 within the Diagnostics segment and $1,100 within the Life Science segment. This compares to +year-to-year +currency exchange rates having an approximate $2,200 favorable impact on revenues in fiscal 2019; $1,150 within the Diagnostics segment and $1,050 within the Life Science segment. +Significant Customers +Revenue concentrations related to certain customers within our Diagnostics and Life Science segments are set forth in Note 10 of the accompanying Consolidated Financial Statements. +Gross Profit: +2020 +2019 +2018 +2020 vs. +2019 +Inc (Dec) +2019 vs. +2018 +Inc (Dec) +Gross Profit +$ +156,248 +$ +118,728 +$ +131,033 +32 +% +(9 +%) +Gross Profit Margin +62 +% +59 +% +61 +% +3 points +-2 points +The gross profit margin increase experienced in fiscal 2020 results primarily from the positive impacts of a significantly higher percentage of the Life Science segment’s revenue relating to sales of molecular products and the segment’s manufacturing of larger-than-normal batch sizes for the RNA master mixes, both in response to the +COVID-19 +pandemic demand, partially offset by the combined effects of: (i) previously-noted pricing changes within our +H. pylori +product line; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; and (iii) production capacity +ramp-up +costs for our Quebec facility where Revogene instruments and test devices are made. The overall decrease in the gross profit margin from fiscal 2018 to fiscal 2019 reflects the combined effects of: (i) previously-noted pricing changes within our +H. pylori +product line; (ii) mix of products sold, particularly decreased contribution from certain of our higher margin gastrointestinal assays; (iii) production capacity +ramp-up +costs for our Quebec facility; and (iv) operating segment mix. +Operating Expenses - +Segment Detail +Research & +Development +Selling & +Marketing +General & +Administrative +Other +Total Operating +Expenses +Fiscal 2018: +Diagnostics +$ +13,579 +$ +24,659 +$ +18,120 +$ +4,032 +$ +60,390 +Life Science +3,034 +9,367 +10,342 +1,240 +23,983 +Corporate +— +— +7,297 +7,779 +15,076 +Total 2018 Expenses +$ +16,613 +$ +34,026 +$ +35,759 +$ +13,051 +$ +99,449 +Fiscal 2019: +Diagnostics +$ +14,545 +$ +22,695 +$ +17,081 +$ +3,446 +$ +57,767 +Life Science +3,215 +5,300 +9,186 +188 +17,889 +Corporate +— +— +7,777 +2,596 +10,373 +Total 2019 Expenses +$ +17,760 +$ +27,995 +$ +34,044 +$ +6,230 +$ +86,029 +Fiscal 2020: +Diagnostics +$ +21,454 +$ +21,172 +$ +23,233 +$ +(1,916 +) +$ +63,943 +Life Science +2,275 +5,314 +11,755 +200 +19,544 +Corporate +— +— +9,357 +2,080 +11,437 +Total 2020 Expenses +$ +23,729 +$ +26,486 +$ +44,345 +$ +364 +$ +94,924 +- 31 - +Table of Contents +Operating Expenses - +Comparisons to Prior Year +Periods +Research & +Development +Selling & +Marketing +General & +Administrative +Other +Total Operating +Expenses +2018 Expenses +$ +16,613 +$ +34,026 +$ +35,759 +$ +13,051 +$ +99,449 +% of Revenues +8 +% +16 +% +17 +% +6 +% +47 +% +Fiscal 2019 Increases (Decreases): +Diagnostics +966 +(1,964 +) +(1,039 +) +(586 +) +(2,623 +) +Life Science +181 +(4,067 +) +(1,156 +) +(1,052 +) +(6,094 +) +Corporate +— +— +480 +(5,183 +) +(4,703 +) +2019 Expenses +$ +17,760 +$ +27,995 +$ +34,044 +$ +6,230 +$ +86,029 +% of Revenues +9 +% +14 +% +17 +% +3 +% +43 +% +% Increase (Decrease) +7 +% +(18 +%) +(5 +%) +(52 +%) +(13 +%) +Fiscal 2020 Increases (Decreases): +Diagnostics +6,909 +(1,523 +) +6,152 +(5,362 +) +6,176 +Life Science +(940 +) +14 +2,569 +12 +1,655 +Corporate +— +— +1,580 +(516 +) +1,064 +2020 Expenses +$ +23,729 +$ +26,486 +$ +44,345 +$ +364 +$ +94,924 +% of Revenues +9 +% +10 +% +17 +% +— +% +37 +% +% Increase (Decrease) +34 +% +(5 +%) +30 +% +(94 +%) +10 +% +Total operating expenses fluctuated during fiscal 2020 and fiscal 2019 primarily as a result of the combined effects of the following: +Fiscal 2020 increase +• +Increased Research & Development costs, primarily reflecting the development of the molecular +SARS-CoV-2 +assay and molecular GI and RI panel assays for the Diagnostics operating segment, and to a lesser degree, the addition of Exalenz research and development expenses since the April 30, 2020 date of acquisition; +• +Decreased Selling & Marketing costs, primarily reflecting the effects of reduced travel from restrictions imposed during the +COVID-19 +pandemic and the effect such restrictions have had on general sales and marketing activities; +• +Increased General & Administrative costs, primarily reflecting additional investment in incentive compensation, along with the purchase accounting amortization from the acquisitions of Exalenz and the GenePOC business; and +• +Increased acquisition costs and decreased restructuring costs, along with a net decrease in fair value of the contingent consideration obligation for the GenePOC business, all of which are reflected within “Other” in the above tables. +Fiscal 2019 decrease +• +Increased Research & Development costs, reflecting the addition of the GenePOC business expenses for the development of the GI and RI panel assays since the June 3, 2019 date of acquisition, partially offset by the decreased expenditures resulting from the timing of product development projects and the clinical trials for our cCMV test in fiscal 2018; +- 32 - +Table of Contents +• +Decreased Selling & Marketing costs due to: (i) the effects of the fiscal 2018 organization streamlining initiatives; and (ii) lower sales commissions resulting from the decrease in sales levels; +• +Decreased General & Administrative costs, reflecting the effects of the fiscal 2018 organization streamlining initiatives and lower Quality System remediation costs related to our blood-lead manufacturing facility, partially offset by the addition of the GenePOC business expenses, including purchase accounting amortization; and +• +Decreased restructuring & selected legal costs, along with the effects of the fiscal 2019 acquisition-related costs (reflected within “Other” in the above tables). +Operating Income +Operating income increased 88% in fiscal 2020, following a 4% increase in fiscal 2019, as a result of the factors discussed above. +Other Income and Expense +Other income and expense in fiscal 2020, 2019 and 2018 includes interest costs on the Company’s long-term borrowings. The varying levels of the Company’s interest costs reflects the following approximate levels of average debt outstanding and the interest costs thereon, as detailed in Note 6 of the accompanying Consolidated Financial Statements: (i) fiscal 2020 – $74,560; (ii) fiscal 2019 – $57,938; and (iii) fiscal 2018 – $52,500. +Income Taxes +The effective rate for income taxes was 22%, 23% and 21% for fiscal 2020, 2019 and 2018, respectively. While relatively comparable to the fiscal 2019 and fiscal 2018 rates, the fiscal 2020 tax rate reflects the combined effects of the following: (i) a significantly higher percentage of pretax income being generated in foreign jurisdictions with tax rates lower than the U.S., particularly the United Kingdom; and (ii) the +non-deductibility +of a significant portion of the acquisition-related costs related to Exalenz. +Impact of Inflation +To the extent feasible, we have consistently followed the practice of reviewing our prices to consider the impacts of inflation on salaries and fringe benefits for employees and the cost of purchased materials and services. Inflation and changing prices did not have a material adverse impact on our gross margin, revenues or operating income in fiscal 2020, 2019 and 2018. +Liquidity and Capital Resources +: +Liquidity +Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets and debt service. We have historically maintained a credit facility to augment working capital requirements and to respond quickly to acquisition opportunities. +We have an investment policy that guides the holdings of our investment portfolio, which presently consists of bank savings accounts and institutional money market mutual funds. Our objectives in managing the investment portfolio are to: (i) preserve capital; (ii) provide sufficient liquidity to meet working capital requirements and fund strategic objectives such as acquisitions; and (iii) capture a market rate of return commensurate with market conditions and our policy’s investment eligibility criteria. As we look forward, we will continue to manage the holdings of our investment portfolio with preservation of capital being the primary objective. +We intend to continue to fund our working capital requirements from current cash flows from operating activities and cash on hand. If needed, we also have an additional source of liquidity through the amount remaining available on our $160,000 bank revolving credit facility, which totaled approximately $91,200 as of September 30, 2020. Our liquidity needs may change if overall economic conditions worsen and/or liquidity and credit within the financial markets tightens for an extended period of time, and such conditions impact the collectability of our customer accounts receivable, impact credit terms with our vendors, or disrupt the supply of raw materials and services. +- 33 - +Table of Contents +During fiscal 2020, we generated a record level of cash flow from operations totaling $47,976. This level of cash resulted from the achievement of record fiscal year revenues, along with well-managed accounts receivable balances, including the requirement of advance payments in certain instances, as illustrated by an approximate 26% increase in consolidated revenues and only an approximate 5% increase in +year-end +accounts receivable balances. +Our levels of inventory increased approximately $21,600 to $61,264 between September 30, 2019 and September 30, 2020. This increase was attributable to inventory builds in both our Diagnostics and Life Science segments to protect against future supply interruptions and to meet +COVID-19 +related demand. For our Diagnostics segment, we also have maintained inventory levels in anticipation of a return to +pre-pandemic +diagnostic testing activity and have BreathID inventory on hand for the first time in fiscal 2020 as a result of the Exalenz acquisition. We are actively managing our inventory levels and are expecting reductions during the first half of fiscal 2021. +As of September 30, 2020, our cash and equivalents balance was $53,514 or approximately $8,900 lower than at the end of fiscal 2019. As a result of the cash generated from operations during fiscal 2020 and the financing activities related to the Exalenz acquisition, since the beginning of fiscal 2020, our balance of net debt (defined as bank debt, government grant obligations and total contingent obligations related to the acquisition of the GenePOC business, net of cash and equivalents +on-hand) +has increased approximately $6,700 to approximately $52,300 at September 30, 2020. Net cash flows from operating activities and cash on hand are anticipated to be adequate to fund working capital requirements, capital expenditures and debt service during the next twelve months. +The impacts of +COVID-19 +have adversely affected the capital markets and the ability of many companies to access capital and liquidity on favorable terms or at all. The Company believes it has sufficient liquidity and cash flows to meet its operating and debt service requirements for at least the next twelve months and expects to be in compliance with its financial covenants during this same period. However, given the unusual nature of the +COVID-19 +pandemic and the rapidly changing environment, we can provide no assurances in this regard and future impacts may materialize that are not currently known. +In April 2019, we suspended the payment of our quarterly cash dividend. The dividend was suspended as part of our regular evaluation of capital allocation, with the action taken in order to deploy cash into new product development activities for the Revogene molecular diagnostic platform, as well as the Curian and Pediastat platforms, among other investments, and to preserve capital resources and liquidity for general corporate purposes. +Capital Resources +As described in Note 6, +“Bank Credit Arrangements” +of the accompanying Consolidated Financial Statements and above, the Company maintains a $160,000 credit facility, which is secured by substantially all our U.S. assets and includes certain restrictive financial covenants. The Company also maintains a shelf registration statement on file with the Securities and Exchange Commission. +Our capital expenditures totaled $3,299 for fiscal 2020 and were largely related to laboratory and manufacturing equipment. During fiscal 2021 our capital expenditures are estimated to range between approximately $4,000 and $17,000. Our Diagnostics segment capital expenditures could be as high as $14,000, depending upon the level of manufacturing +scale-up +we execute in anticipation of Revogene +COVID-19 +assay production, and our Life Science segment capital expenditures could be as high as $3,000, reflecting manufacturing capacity expansion at various locations. Such expenditures may be funded with cash and equivalents on hand, operating cash flows and/or availability under the $160,000 revolving credit facility discussed above. In addition, a portion of the Diagnostics expansion may possibly be funded by certain grants for which we are applying, none of which we are assured of receiving as of the date of this filing. +- 34 - +Table of Contents +Known Contractual Obligations +: +In addition to the obligations related to the above-noted revolving credit facility and the contingent government grant obligations detailed in Note 6, +“Bank Credit Arrangements” +and Note 9, +“Contingent Obligations and +Non-Current +Liabilities” +of the accompanying Consolidated Financial Statements, respectively, the Company’s known contractual obligations and their related due dates were as follows as of September 30, 2020: +Total +Less than 1 +Year +1-3 Years +4-5 Years +More than +5 Years +Operating leases +(1) +$ +6,968 +$ +2,002 +$ +3,015 +$ +1,669 +$ +282 +Purchase obligations +(2) +27,691 +26,315 +1,376 +— +— +Acquisition price holdback and contingent consideration +(3) +69,000 +5,000 +64,000 +— +— +Uncertain income tax positions liability and interest +(4) +706 +706 +— +— +— +Total +$ +104,365 +$ +34,023 +$ +68,391 +$ +1,669 +$ +282 +(1) +Meridian and its subsidiaries are parties to a number of operating lease agreements around the world, the majority of which relate to office and warehouse building leases expiring at various dates. +(2) +Purchase obligations relate primarily to outstanding purchase orders for inventory, including instruments, service items, and research and development activities. These contractual commitments are not in excess of expected production requirements over the next twelve months. +(3) +Pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC, as amended during fiscal 2020, Meridian’s maximum remaining consideration to be paid totals $69,000. As noted below and detailed in Note 2, +“Business Combinations” +of the accompanying Consolidated Financial Statements, this amount is comprised of: (i) a $5,000 purchase price holdback; and (ii) up to $64,000 of payments contingent upon the achievement of certain product development milestones and financial performance targets, the valuation of which totals approximately $20,909 as of September 30, 2020. +(4) +Due to inherent uncertainties in the timing of settlement of tax positions, we are unable to estimate the timing of the effective settlement of these obligations. +Other Commitments and +Off-Balance +Sheet Arrangements +: +License Agreements +Meridian has entered into various license agreements that require payment of royalties based on a specified percentage of sales of related products. Approximately 81% of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from 3% to 8%. Meridian expects that payments under these agreements will amount to approximately $1,700 in fiscal 2021. +Contingent Consideration for Acquisition of Business of GenePOC +Details of the purchase price holdback and contingent consideration due to be paid pursuant to the purchase agreement related to the June 3, 2019 acquisition of the business of GenePOC are set forth in Note 2, +“Business Combinations” +of the accompanying Consolidated Financial Statements. +Off-Balance +Sheet Arrangements +We do not utilize special-purpose financing vehicles or have undisclosed +off-balance +sheet arrangements. +- 35 - +Table of Contents +Market Risk Exposure +: +Foreign Currency Risk +We have market risk exposure related to foreign currency transactions from our operations outside the United States, as well as certain suppliers to our domestic businesses located outside the United States. The foreign currencies where we have market risk exposure are the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and New Israeli shekel. Assessing foreign currency exposures is a component of our overall ongoing risk management process, with such currency risks managed as we deem appropriate. +Concentration of Customers/Products Risk +Our Diagnostics segment’s revenues from sales through two U.S. distributors were 23% of the segment’s total revenues or 12% of consolidated revenues for fiscal 2020. Additionally, our three major product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 82% of our Diagnostics segment’s third-party revenues during fiscal 2020, and 39% of our fiscal 2020 consolidated revenues. +Our Life Science segment’s revenues from sales of purified antigens and reagents to three diagnostics manufacturing customers were 27% of the segment’s total revenues for fiscal 2020, and 14% of our fiscal 2020 consolidated revenues. Additionally, sales of products related to +COVID-19 +accounted for 54% of our Life Science segment’s third-party revenues during fiscal 2020, and 28% of our 2020 consolidated revenues. +Critical Accounting Policies +: +The consolidated financial statements included in this Annual Report on Form +10-K +have been prepared in accordance with accounting principles generally accepted in the United States. Such accounting principles require management to make judgments about estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Listed below are the accounting policies management believes to be critical to understanding the accompanying Consolidated Financial Statements, along with reference to location of the policy discussion within the accompanying financial statements. The listed policies are considered critical due to the fact that application of such polices requires the use of significant estimates and assumptions, and the carrying values of related assets and liabilities are material. +Accounting Policy +Location +Within Consolidated +Financial Statements +Examples of Key Estimate Assumptions +Inventories +Note 1(f) +Slow-moving, excess & obsolete inventories +Intangible Assets +Note 1(h) +Triggering events and impairment conditions +Revenue Recognition +Note 1(i) +Distributor price adjustments and fee accruals +Fair Value Measurements +Note 1(j) +Valuation of interest rate swap agreements and contingent consideration +Income Taxes +Note 1(l) and Note 7 +Uncertain tax positions and state apportionment factors +Recent Accounting Pronouncements +: +A description of accounting pronouncements recently adopted by the Company, as well as accounting pronouncements issued but not yet adopted by the Company, are set forth in Note 1(q) of the accompanying Consolidated Financial Statements. +ITEM 7A. +QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK +See Market Risk Exposure and Capital Resources under Item 7 above beginning on page 25. +- 36 - +Table of Contents +ITEM 8. +FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA +Index to Consolidated Financial Statements +Management’s Report on Internal Control over Financial Reporting +38 +Reports of Independent Registered Public Accounting Firm +39 +Consolidated Statements of Operations for the years ended September 30, 2020, 2019 and 2018 +43 +Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 and 2018 +44 +Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018 +45 +Consolidated Balance Sheets as of September 30, 2020 and 2019 +46 +Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2020, 2019 and 2018 +48 +Notes to Consolidated Financial Statements +49 +Schedule No. II – Valuation and Qualifying Accounts for the years ended September 30, 2020, 2019 and 2018 +79 +All other supplemental schedules are omitted due to the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or Notes thereto. +- 37 - +Table of Contents +MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING +Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule +13a-15(f). +The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) 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 can only provide reasonable assurance and 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. +Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2020, based on the framework and criteria in the 2013 +Internal Control – Integrated Framework, +issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on management’s evaluation and those criteria, the Company concluded that its system of internal control over financial reporting was effective as of September 30, 2020. The Company’s assessment of and conclusion on the effectiveness of its internal control over financial reporting did not include the internal controls of wholly-owned subsidiaries Meridian Bioscience Israel Holding Ltd. and Exalenz Bioscience, Inc. (collectively “Exalenz”), which were acquired during fiscal 2020 and the results of which since the date of acquisition were included in the 2020 consolidated financial statements. Exalenz constituted $75,551 or 18.64% of the Company’s total assets as of September 30, 2020, and $4,206 or 1.66% of total net revenues, for the year ended September 30, 2020. +The Company’s independent registered public accounting firm has issued an attestation report on the registrant’s internal control over financial reporting. +/s/ Jack Kenny +/s/ Bryan T. Baldasare +Jack Kenny +Bryan T. Baldasare +Chief Executive Officer +Executive Vice President and +November 23, 2020 +Chief Financial Officer +November 23, 2020 +- 38 - +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Shareholders +Meridian Bioscience, Inc. +Opinion on the financial statements +We have audited the accompanying consolidated balance sheets of Meridian Bioscience, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and financial statement schedule listed in the index appearing under Schedule No. II (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in the 2013 +Internal Control—Integrated Framework +issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November 23, 2020 expressed an unqualified opinion. +Adoption of new accounting standard +As discussed in Note 1 to the consolidated financial statements, the Company has changed its method for accounting for leases in fiscal 2020 due to the adoption of Accounting Standards Codification 842, +Leases +. +Basis for opinion +These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. +Critical audit matter +The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. +- 39 - +Table of Contents +Valuation of Intangible Assets associated with the Exalenz Acquisition +As described further in Note 2 to the consolidated financial statements, the Company completed its acquisition of Exalenz Bioscience Ltd. (“Exalenz”) for net cash consideration of $51.3 million, which resulted in the identification and recognition of $55.2 million of intangible assets. Intangible assets consisted primarily of customer relationships, technology and trade name (collectively “the identifiable intangible assets”), with the remainder allocated to goodwill. The Company used a discounted cash flow model to measure the customer relationship intangible asset and a relief from royalty model to measure the technology and trade name intangible assets. We identified the valuation of identifiable intangible assets associated with the Exalenz acquisition as a critical audit matter. +The principal consideration for our determination that the valuation of the identifiable intangible assets is a critical audit matter is the complexity associated with auditing the Company’s preliminary valuation of identifiable intangible assets due to the high degree of management subjectivity in the related fair value estimates. The high degree of management subjectivity is primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The significant assumptions used to estimate the fair value of the identifiable intangible assets included certain assumptions that form the basis of the future net cash flows (e.g., assumed growth rates, discount rate, economic lives, royalty rates and margin percentages). These significant assumptions are forward looking and consider anticipated market conditions. +Our audit procedures related to the preliminary valuation of intangible assets included the following, among others. +• +We tested the design and operating effectiveness of controls relating to the valuation report and allocation of purchase price, which included management’s review of the preliminary valuation report for the completeness and mathematical accuracy of the data, and evaluating the reasonableness of assumptions used in the calculations, such as assumed growth rates, discount rate, economic lives, royalty rates and margin percentages, as compared to industry/market data. +• +We tested the significant assumptions used within the discounted cash flow model to estimate the fair value of the identifiable intangible assets which included certain assumptions such as assumed growth rates, economic lives, and margin percentages as compared to industry/market data. +• +We utilized a valuation specialist to assist in evaluating the appropriateness of the Company’s selection of valuation methodology for the identifiable intangible assets and evaluating the reasonableness of certain significant assumptions used, including discount rate, economic lives, and royalty rates. +• +We evaluated whether assumptions used were reasonable by considering past performance of similar assets, industry data, current market forecasts, and whether such assumptions were consistent with evidence obtained in other areas of the audit. +/s/ GRANT THORNTON LLP +We have served as the Company’s auditor since 2005. +Cincinnati, Ohio +November 23, 2020 +- 40 - +Table of Contents +REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM +Board of Directors and Shareholders +Meridian Bioscience, Inc. +Opinion on internal control over financial reporting +We have audited the internal control over financial reporting of Meridian Bioscience, Inc. an Ohio corporation and subsidiaries (the “Company”) as of September 30, 2020, based on criteria established in the 2013 +Internal Control—Integrated Framework +issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in the 2013 +Internal Control—Integrated Framework +issued by COSO. +We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended September 30, 2020, and our report dated November 23, 2020 expressed an unqualified opinion on those financial statements. +Basis for opinion +The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. +We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. +Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Meridian Bioscience Israel Holding Ltd. and Exalenz Bioscience, Inc., wholly-owned subsidiaries (collectively “Exalenz”), whose financial statements reflect total assets and revenues constituting 18.64% and 1.66%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2020. As indicated in Management’s Report, Exalenz was acquired during fiscal 2020. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Exalenz. +Definition and limitations of internal control over financial reporting +A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. +- 41 - +Table of Contents +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/ GRANT THORNTON LLP +Cincinnati, Ohio +November 23, 2020 +- 42 - +Table of Contents +CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2020 +2019 +2018 +Net Revenues +$ +253,667 +$ +201,014 +$ +213,571 +Cost of Sales +97,419 +82,286 +82,538 +Gross Profit +156,248 +118,728 +131,033 +Operating Expenses: +Research and development +23,729 +17,760 +16,613 +Selling and marketing +26,486 +27,995 +34,026 +General and administrative +44,345 +34,044 +35,759 +Acquisition-related costs +3,890 +1,808 +— +Change in fair value of contingent +consideration obligation +( 6,293 +) +— +— +Restructuring costs +687 +2,839 +8,706 +Selected legal costs +2,080 +1,583 +4,345 +Total operating expenses +94,924 +86,029 +99,449 +Operating Income +61,324 +32,699 +31,584 +Other Income (Expense): +Interest income +142 +681 +418 +Interest expense +( 2,632 +) +( 1,945 +) +( 1,520 +) +Other, net +459 +122 +( 102 +) +Total other expense +( 2,031 +) +( 1,142 +) +( 1,204 +) +Earnings Before Income Taxes +59,293 +31,557 +30,380 +Income Tax Provision +13,107 +7,175 +6,531 +Net Earnings +$ +46,186 +$ +24,382 +$ +23,849 +Earnings Per Share Data: +Basic earnings per common share +$ +1.08 +$ +0.57 +$ +0.56 +Diluted earnings per common share +$ +1.07 +$ +0.57 +$ +0.56 +Common shares used for basic earnings per common share +42,855 +42,571 +42,325 +Effect of dilutive stock options and restricted share units +319 +328 +429 +Common shares used for diluted earnings per common share +43,174 +42,899 +42,754 +Dividends declared per common share +$ +— +$ +0.250 +$ +0.500 +Anti-dilutive Securities: +Common share options and restricted share units +893 +1,129 +1,007 +The accompanying notes are an integral part of these consolidated financial statements. +- 43 - +Table of Contents +CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2020 +2019 +2018 +Net Earnings +$ +46,186 +$ +24,382 +$ +23,849 +Other comprehensive income (loss): +Foreign currency translation adjustment +3,884 +( 802 +) +( 1,075 +) +Unrealized gain (loss) on cash flow hedge +( 713 +) +( 1,159 +) +907 +Reclassification of amortization of gain on cash flow hedge +( 308 +) +( 102 +) +— +Income taxes related to items of other comprehensive income +252 +465 +( 263 +) +Other comprehensive income (loss), net of tax +3,115 +( 1,598 +) +( 431 +) +Comprehensive Income +$ +49,301 +$ +22,784 +$ +23,418 +The accompanying notes are an integral part of these consolidated financial statements. +- 44 - +Table of Contents +CONSOLIDATED STATEMENTS OF CASH FLOWS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +For the Year Ended September 30, +2020 +2019 +2018 +Cash Flows From Operating Activities +Net earnings +$ +46,186 +$ +24,382 +$ +23,849 +Non-cash +items included in net earnings: +Depreciation of property, plant and equipment +5,823 +5,433 +4,491 +Amortization of intangible assets +7,744 +4,531 +3,433 +Amortization of deferred instrument costs +— +— +764 +Stock-based compensation +3,802 +3,251 +3,402 +Deferred income taxes +760 +( 817 +) +( 300 +) +Losses on dispositions of long-lived assets +64 +632 +— +Change in +accrued conti +ngent consideration +( 6,293 +) +— +— +Change in the following, net of acquisitions: +Accounts receivable +( 971 +) +( 2,215 +) +( 4,370 +) +Inventories +( 18,977 +) +3,841 +( 1,142 +) +Prepaid expenses and other current assets +( 153 +) +( 2,143 +) +246 +Accounts payable and accrued expenses +7,248 +( 2,315 +) +4,124 +Income taxes payable +1,435 +1,793 +( 524 +) +Other, net +1,308 +( 198 +) +814 +Net cash provided by operating activities +47,976 +36,175 +34,787 +Cash Flows From Investing Activities +Purchase of property, plant and equipment +( 3,299 +) +( 3,797 +) +( 4,201 +) +Disposals of property, plant and equipment +— +669 +— +Acquisitions, net of cash acquired +( 51,299 +) +( 45,324 +) +— +Net cash used for investing activities +( 54,598 +) +( 48,452 +) +( 4,201 +) +Cash Flows From Financing Activities +Dividends paid +— +( 10,612 +) +( 21,170 +) +Proceeds from revolving credit facility +50,000 +75,824 +— +Payment on revolving credit facility +( 57,000 +) +— +— +Payment of debt issuance costs +( 116 +) +( 489 +) +— +Payments on term loan +— +( 50,250 +) +( 4,500 +) +Proceeds from exercises of stock options +3,559 +443 +183 +Payment of acquisition consideration +— +— +( 2,110 +) +Net cash provided by (used for) financing activities +( 3,557 +) +14,916 +( 27,597 +) +Effect of Exchange Rate Changes on Cash and Equivalents and Restricted Cash +1,296 +( 1,005 +) +( 298 +) +Net Increase (Decrease) in Cash and Equivalents and Restricted Cash +( 8,883 +) +1,634 +2,691 +Cash and Equivalents and Restricted Cash at Beginning of Period +62,397 +60,763 +58,072 +Cash and Equivalents and Restricted Cash at End of of Period +$ +53,514 +$ +62,397 +$ +60,763 +Cash and Equivalents +$ +53,514 +$ +62,397 +$ +59,763 +Restricted Cash +— +— +1,000 +Cash and Equivalents and Restricted Cash at End of Period +$ +53,514 +$ +62,397 +$ +60,763 +Supplemental Cash Flow Information: +See Notes 1(g), 2, +5, 6 and 7. +The accompanying notes are an integral part of these consolidated financial statements. +- 45 - +Table of Contents +CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +As of September 30, +2020 +2019 +Assets +Current Assets: +Cash and equivalents +$ +53,514 +$ +62,397 +Accounts receivable, less allowances of $ 513 and $ 537 , respectively +38,512 +36,698 +Inventories +61,264 +39,617 +Prepaid expenses and other current assets +8,900 +6,049 +Total current assets +162,190 +144,761 +Property, Plant and Equipment, at Cost: +Land +991 +982 +Buildings and improvements +32,188 +31,904 +Machinery, equipment and furniture +69,854 +64,155 +Construction in progress +1,200 +522 +Subtotal +104,233 +97,563 +Less: accumulated depreciation and amortization +73,113 +66,996 +Net property, plant and equipment +31,120 +30,567 +Other Assets: +Goodwill +114,186 +89,241 +Other intangible assets, net +83,197 +60,243 +Right-of-use +assets +6,336 +— +Deferred income taxes +7,647 +156 +Other assets +585 +510 +Total other assets +211,951 +150,150 +Total assets +$ +405,261 +$ +325,478 +The accompanying notes are an integral part of these consolidated financial statements. +- 46 - +Table of Contents +CONSOLIDATED BALANCE SHEETS (dollar amounts in thousands) +Meridian Bioscience, Inc. and Subsidiaries +As of September 30, +2020 +2019 +Liabilities and Shareholders’ Equity +Current Liabilities: +Accounts payable +$ +11,969 +$ +7,238 +Accrued employee compensation costs +16,661 +7,938 +Current portion of acquisition consideration +12,619 +— +Current operating lease obligations +1,789 +— +Current government grant obligations +600 +— +Other accrued expenses +5,362 +3,758 +Income taxes payable +3,524 +1,980 +Total current liabilities +52,524 +20,914 +Non-Current +Liabilities: +Acquisition consideration +13,290 +32,202 +Post-employment benefits +2,493 +2,500 +Fair value of interest rate swaps +713 +— +Long-term operating lease obligations +4,678 +— +Long-term debt +68,824 +75,824 +Government grant obligations +10,524 +— +Long-term income taxes payable +549 +549 +Deferred income taxes +3,804 +2,522 +Other non-current liabilities +233 +— +Total +non-current +liabilities +105,108 +113,597 +Commitments and Contingencies +Shareholders’ Equity: +Preferred stock, no par value; 1,000,000 shares authorized; no ne issued +— +— +Common shares, no par value; 71,000,000 shares authorized, 43,068,842 and 42,712,296 issued, respectively +— +— +Additional +paid-in +capital +140,195 +132,834 +Retained earnings +109,294 +63,108 +Accumulated other comprehensive loss +( 1,860 +) +( 4,975 +) +Total shareholders’ equity +247,629 +190,967 +Total liabilities and shareholders’ equity +$ +405,261 +$ +325,478 +The accompanying notes are an integral part of these consolidated financial statements. +- 47 - +Table of Contents +CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (dollar and share amounts in thousands, except per share data) +Meridian Bioscience, Inc. and Subsidiaries +Common +Shares +Issued +Additional +Paid-in +Capital +Retained +Earnings +Accum Other +Comp +Income +(Loss) +Total +Balance at September 30, 2017 +42,207 +$ +125,608 +$ +46,923 +$ +( 2,946 +) +$ +169,585 +Cash dividends paid - $ 0.500 per share +— +— +( 21,170 +) +— +( 21,170 +) +Conversion of restricted share units and exercise of stock options +193 +183 +— +— +183 +Stock compensation expense +— +3,402 +— +— +3,402 +Net earnings +— +— +23,849 +— +23,849 +Foreign currency translation adjustment +— +— +— +( 1,075 +) +( 1,075 +) +Hedging activity, net of tax +— +— +— +644 +644 +Balance at September 30, 2018 +42,400 +129,193 +49,602 +( 3,377 +) +175,418 +Cash dividends paid - $ 0.250 per share +— +— +( 10,612 +) +— +( 10,612 +) +Conversion of restricted share units and exercise of stock options +312 +390 +— +— +390 +Stock compensation expense +— +3,251 +— +— +3,251 +Net earnings +— +— +24,382 +— +24,382 +Foreign currency translation adjustment +— +— +— +( 802 +) +( 802 +) +Hedging activity, net of tax +— +— +— +( 944 +) +( 944 +) +Adoption of ASU +2014-09 +— +— +( 116 +) +— +( 116 +) +Adoption of ASU +2018-02 +— +— +( 148 +) +148 +— +Balance at September 30, 2019 +42,712 +132,834 +63,108 +( 4,975 +) +190,967 +Conversion of restricted share units exercise of stock options +357 +3,559 +— +— +3,559 +Stock compensation expense +— +3,802 +— +— +3,802 +Net earnings +— +— +46,186 +— +46,186 +Foreign currency translation adjustment +— +— +— +3,884 +3,884 +Hedging activity, net of tax +— +— +— +( 769 +) +( 769 +) +Balance at September 30, 2020 +43,069 +$ +140,195 +$ +109,294 +$ +( 1,860 +) +$ +247,629 +The accompanying notes are an integral part of these consolidated financial statements. +- 48 - +Table of Contents +NOTES TO CONSOLIDATED FINANCIAL STATEMENTS +Meridian Bioscience, Inc. and Subsidiaries +(dollar and share amounts in thousands, except per share data) +(1) +Summary of Significant Accounting Policies +(a) +Nature of Business +- +Meridian is a fully-integrated life science company whose principal businesses are: (i) the development, manufacture and distribution of clinical diagnostic test kits primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by other diagnostic manufacturers and researchers. +(b) +Principles of Consolidation - +The consolidated financial statements include the accounts of Meridian Bioscience, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, references to “Meridian,” “we,” “us,” “our” or “our company” refer to Meridian Bioscience, Inc. and its subsidiaries. +(c) +Use of Estimates +- +The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. +(d) +Foreign Currency Translation +- Assets and liabilities of foreign operations are translated using +year-end +exchange rates with gains or losses resulting from translation included as a separate component of accumulated other comprehensive income or loss. Revenues and expenses are translated using exchange rates prevailing during the year. We also recognize foreign currency transaction gains and losses on certain assets and liabilities that are denominated in the Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, and New Israeli shekel currencies. These gains and losses are included in other income and expense in the accompanying Consolidated Statements of Operations. +(e) +Cash, Cash Equivalents and Investments +- +The primary objectives of our investment activities are to preserve capital and provide sufficient liquidity to meet operating requirements and fund strategic initiatives such as acquisitions. We maintain a written investment policy that governs the management of our investments in fixed income securities. This policy, among other things, provides that we may purchase only high credit-quality securities that have short-term ratings of at least A-2, P-2 and F-2, and long-term ratings of at least A, Baa1 and A, by Standard & Poor’s, Moody’s and Fitch, respectively, at the time of purchase. We consider short-term investments with original maturities of 90 days or less to be cash equivalents, including institutional money market funds. At times our investments of cash and equivalents with various high credit quality financial institutions may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. +As of September 30, +2020 +2019 +Institutional money market funds +$ +1,017 +$ +20,913 +Cash +on hand, unrestricted +52,497 +41,484 +Total +$ +53,514 +$ +62,397 +- 49 - +Table of Contents +(f) +Inventories +- Inventories are stated at the lower of cost +or net realizable value +. Cost is determined on a +first-in, +first-out +(FIFO) basis. Testing instruments are carried in inventory until they are sold outright or placed with a customer under the customer reagent rental program, at which time they are transferred to property, plant and equipment. +We establish reserves against cost for excess and obsolete materials, finished goods whose shelf life may expire before sale to customers, and other identified exposures. Such reserves were $ 3,629 and $ 2,441 at September 30, 2020 and 2019, respectively. We estimate these reserves based on assumptions about future demand and market conditions. If actual demand and market conditions were to be less favorable than such estimates, additional inventory write-downs would be required and recorded in the period known. Such adjustments would negatively affect gross profit margin and overall results of operations. +(g) +Property, Plant and Equipment +- Property, plant and equipment are stated at cost. Upon retirement or other disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Maintenance and repairs are expensed as incurred. Depreciation is computed on the straight-line method in amounts sufficient to +write-off +the cost over the estimated useful lives, generally as follows: +Buildings and improvements - 18 to 40 years +Leasehold improvements - life of the lease +Machinery, equipment and furniture - 3 to 10 years +Computer equipment and software - 3 to 5 years +Instruments under customer reagent rental arrangements - 5 years +Supplemental Cash Flow Information +(Non-Cash +Capital Expenditures) +Additions to property, plant and equipment for which cash remained unpaid at fiscal +year-end +totaled $ 236 , $ 108 and $ 294 in fiscal 2020, 2019 and 2018, respectively. +(h) +Intangible Assets - +Goodwill is subject to an annual impairment review (or more frequently if impairment indicators arise) at the reporting unit level, which we perform annually as of June 30, the end of our third fiscal quarter. A reporting unit is generally an operating segment or one level below an operating segment that constitutes a business for which discrete financial information is available and regularly reviewed by segment management. At both September 30, 2020 and September 30, 2019, we had two reporting units (Diagnostics and Life Science), both of which contained goodwill. We review our reporting unit structure annually, or more frequently if facts and circumstances warrant. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. We have no intangible assets with indefinite lives other than goodwill. +During fiscal 2020, the annual impairment review of the Company’s goodwill consisted of a qualitative assessment for each of our Diagnostics and Life Science reporting units. A qualitative assessment is first performed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value using qualitative indicators. In the event that the reporting unit does not pass the qualitative assessment, the reporting unit’s carrying value is compared to its fair value, with fair value of the reporting unit estimated using market value and discounted cash flow approaches. Both our Diagnostics and Life Science reporting units satisfied the qualitative assessment for fiscal 2020. +During fiscal 2019 and 2018, we performed quantitative assessments as of June 30 for each of our Diagnostics and Life Science reporting units. As part of this assessment, fair value, as determined through a valuation performed by a third party, was calculated via both market (comparable company) and income (discounted cash flows) approaches. Based upon these approaches, the fair value of each reporting unit exceeded its carrying value; therefore, each of the Diagnostics and Life Science reporting units satisfied the quantitative assessment for each of fiscal 2019 and 2018. +- 50 - +Table of Contents +During fiscal 2020, goodwill increased $ 24,945 , reflecting the addition of $ 24,466 in connection with the acquisition of Exalenz, a +$ 6 decrease +from currency translation adjustments +on the goodwill associated with the GenePOC business, +and a +$ 485 increase +from currency translation adjustments on the goodwill of the Life Science reporting unit. The increase of $ 34,604 in fiscal 2019 resulted from the addition of $ 34,582 +in +connection with the acquisition of the GenePOC business, a $ +599 +increase from the currency translation +adjustments +thereon and a $ +577 +decrease from currency translation adjustments on the goodwill of the Life Science +reporting unit. +A +summary +of Meridian’s acquired intangible assets subject to amortization, as of September 30, 2020 and 2019 is as follows. +2020 +2019 +As of September 30, +Gross +Carrying +Value +Accum. +Amort. +Gross +Carrying +Value +Accum. +Amort. +Manufacturing technologies, core products and cell lin +es +$ +62,363 +$ +18,750 +$ +56,193 +$ +15,096 +Tradenames, licenses and patents +18,425 +7,801 +14,494 +6,094 +Customer +l +ists, +custo +mer relationships +and supply agre +e +ments +45,071 +16,210 +24,274 +14,110 +Government grants +810 +810 +814 +232 +Non-compete +agreements +110 +11 +— +— +$ +126,779 +$ +43,582 +$ +95,775 +$ +35,532 +The actual aggregate amortization expense for these intangible assets for fiscal 2020, 2019 and 2018 was $ 7,744 , $ 4,531 and $ 3,433 , respectively. The estimated aggregate amortization expense for these intangible assets for each of the five succeeding fiscal years is as follows: fiscal 2021 - $ 8,371 , fiscal 2022 - $ 7,993 , fiscal 2023 - $ 7,980 , fiscal 2024 - $ 7,976 +and fiscal 2025 - $ +7,967 . +Long-lived assets, excluding goodwill, are reviewed for impairment when events or circumstances indicate that such +assets +may not be recoverable at their carrying value. Whether an event or circumstance triggers an impairment is determined by comparing an estimate of the asset’s future undiscounted cash flows to its carrying value. If impairment has occurred, it is measured by a fair-value based calculation. +Our ability to recover the carrying value of our intangible assets, both identifiable intangibles and goodwill, is dependent upon the future cash flows of the related acquired businesses and assets. We make judgments and assumptions regarding future cash flows, including sales levels, gross profit margins, operating expense levels, working capital levels, and capital expenditures. With respect to identifiable intangibles and fixed assets, we also make judgments and assumptions regarding useful lives. +We consider the following factors in evaluating events and circumstances for possible impairment: (i) significant under-performance relative to historical or projected operating results; (ii) negative industry trends; (iii) sales levels of specific groups of products (related to specific identifiable intangibles); (iv) changes in overall business strategies; and (v) other factors. +If actual cash flows are less favorable than projections, this could trigger impairment of intangible assets and other long-lived assets. If impairment were to occur, this would negatively affect overall results of operations. No triggering events have been identified by the Company for fiscal 2020, 2019 or 2018. +- 51 - +Table of Contents +(i) +Revenue Recognition and Accounts Receivable +- +Revenue Disaggregation +The following tables present our revenues disaggregated by major geographic region, major product platform and disease state (Diagnostics only): +Revenue by Reportable Segment & Geographic Region +2020 vs. +2019 +2019 vs. +2018 +2020 +2019 +2018 +Inc (Dec) +Inc (Dec) +Diagnostics- +Americas +$ +97,228 +$ +110,109 +$ +123,916 +( 12 +)% +( 11 +)% +EMEA +21,826 +23,888 +23,922 +( 9 +)% +— +% +ROW +2,078 +2,685 +2,616 +( 23 +)% +3 +% +Total Diagnostics +121,132 +136,682 +150,454 +( 11 +)% +( 9 +)% +Life Science- +Americas +37,391 +19,441 +21,080 +92 +% +( 8 +)% +EMEA +58,125 +28,850 +24,715 +101 +% +17 +% +ROW +37,019 +16,041 +17,322 +131 +% +( 7 +)% +Total Life Science +132,535 +64,332 +63,117 +106 +% +2 +% +Consolidated +$ +253,667 +$ +201,014 +$ +213,571 +26 +% +( 6 +)% +Revenue by Product Platform/Type +2020 vs. +2019 +2019 vs. +2018 +2020 +2019 +2018 +Inc (Dec) +Inc (Dec) +Diagnostics- +Molecular assays +$ +21,907 +$ +26,283 +$ +33,709 +( 17 +)% +( 22 +)% +Non-molecular assays +99,225 +110,399 +116,745 +( 10 +)% +( 5 +)% +Total Diagnostics +$ +121,132 +$ +136,682 +$ +150,454 +( 11 +)% +( 9 +)% +Life Science- +Molecular reagents +$ +78,431 +$ +23,261 +$ +24,533 +237 +% +( 5 +)% +Immunological reagents +54,104 +41,071 +38,584 +32 +% +6 +% +Total Life Science +$ +132,535 +$ +64,332 +$ +63,117 +106 +% +2 +% +Revenue by Disease State (Diagnostics only) +2020 vs. +2019 +2019 vs. +2018 +2020 +2019 +2018 +Inc (Dec) +Inc (Dec) +Diagnostics- +Gastrointestinal assays +$ +55,040 +$ +68,982 +$ +78,803 +( 20 +)% +( 12 +)% +Respiratory illness assays +26,694 +26,622 +28,911 +— +% +( 8 +)% +Blood chemistry assays +17,534 +18,639 +19,109 +( 6 +) +% +( 2 +) +% +Other +21,864 +22,439 +23,631 +( 3 +)% +( 5 +)% +Total Diagnostics +$ +121,132 +$ +136,682 +$ +150,454 +( 11 +)% +( 9 +)% +- 52 - +Table of Contents +Revenue Policies +Product Sales +Revenue from contracts with customers is recognized in an amount that reflects the consideration we expect to receive in exchange for products when obligations under such contracts are satisfied. Revenue is generally recognized at a +point-in-time +when products are shipped, and control has passed to the customer. Such contracts can include various combinations of products that are generally accounted for as distinct performance obligations. +Revenue is reduced in the period of sale for fees paid to distributors, which are inseparable from the distributor’s purchase of our product and for which we receive no goods or services in return. Revenue for the Diagnostics segment is reduced at the date of sale for product price adjustments payable to certain distributors under local contracts. Management estimates accruals for distributor price adjustments based on local contract terms, sales data provided by distributors, historical statistics, current trends, and other factors. Changes to the accruals are recorded in the period that they become known. Such accruals are netted against accounts receivable. +Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation. +Our payment terms differ by jurisdiction and customer +, +but payment is generally required in a term ranging from 30 to 90 days from the date of shipment or satisfaction of the performance obligation . Trade accounts receivable are recorded in the accompanying Condensed Consolidated Balance Sheets at invoiced amounts less provisions for distributor price adjustments under local contracts and doubtful accounts. The allowance for doubtful accounts represents our estimate of probable credit losses and is based on historical +write-off +experience and known conditions that would likely lead to +non-payment. +Customer invoices are charged off against the allowance when we believe it is probable that the invoices will not be paid. +Practical Expedients and Exemptions +Revenue is recognized net of any taxes collected from customers (sales tax, value added tax, etc.), which are subsequently remitted to government authorities. +Our diagnostic assay products are generally not subject to a customer right of return except for product recall events under the rules and regulations of the Food and Drug Administration or equivalent agencies outside the United States. In this circumstance, the costs to replace affected products would be accrued at the time a loss was probable and estimable. +We expense as incurred the costs to obtain contracts, as the amortization period would be one year or less. These costs, recorded within selling and marketing expense, include our internal sales force compensation programs and certain partner sales incentive programs, as we have determined that annual compensation is commensurate with annual selling activities. +Reagent Rental Arrangements +Certain of our Diagnostics segment’s product platforms require the use of instruments for the tests to be processed. In many cases, a customer is given use of the instrument provided they continue purchasing the associated tests, also referred to as “consumables” or “reagents”. If a customer stops purchasing the consumables, the instrument must be returned to us. Such arrangements are common practice in the diagnostics industry and are referred to as “Reagent Rentals”. Reagent Rentals may also include instrument related services such as a limited replacement warranty, training and installation. We concluded that the use of the instrument and related services (collectively known as “lease elements”) are not within the scope of Accounting Standards Codification (“ASC”) 606, +Revenue from Contracts with Customers +but rather ASC 842, +Leases +. Accordingly, we first allocate the transaction price between the lease elements and the +non-lease +elements based on estimates of relative standalone selling prices. Lease revenue is derived solely from the sale of consumables and is therefore recognized monthly as earned, which coincides with the transfer of control of the +non-lease +elements. +- 53 - +Table of Contents +For the portion of the transaction price allocated to the +non-lease +elements, which are principally the test kits, the related revenue is recognized at a +point-in-time +when control transfers. +Revenue allocated to the lease elements of these Reagent Rental arrangements totaled approximately $ 4,600 and $ 4,150 in fiscal 2020 and 2019, respectively, and are included as part of net revenues in our Consolidated Statements of Operations. +(j) +Fair Value Measurements +– +Certain assets and liabilities are recorded at fair value in accordance with ASC +820-10, +Fair Value Measurements and Disclosures +. ASC +820-10 +defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC +820-10 +establishes a three-level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each asset and liability is based on the assessment of the transparency and reliability of the inputs used in the valuation of such items at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs ( +L +evel 3 measurements). +Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories based on inputs: +Level 1 +Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities +Level 2 +Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly +or indirectly +Level 3 +Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable +As indicated in Note 2, we acquired Exalenz and the business of GenePOC in fiscal 2020 and fiscal 2019, respectively. The fair value of the acquired accounts receivable and other current assets and the fair value of the assumed accounts payable and accrued expenses approximated their carrying value at the acquisition date. Inventories, property, plant and equipment, intangible assets and contingent consideration were valued using Level 3 inputs. +In connection with the acquisition of the business of GenePOC and an agreement to amend certain terms of the agreement related to contingent consideration achievement levels and milestone dates, as described in Note 2, the Company is required to make contingent consideration payments of up to $ 64,000 (originally $ 70,000 at the acquisition date), comprised of up to $ 14,000 for achievement of product development milestones (originally $ 20,000 at the acquisition date) and up to $ 50,000 for achievement of certain financial targets. The fair value for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $ 27,202 . The fair value of the product development milestone payments was estimated by discounting the probability-weighted contingent payments to present value. Assumptions used in the calculations include probability of success, duration of the +earn-out +and discount rate. The fair value of the financial performance target payments was determined using a Monte Carlo simulation-based model. Assumptions used in these calculations include expected revenue, probability of certain developments, expected expenses and discount rate. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. Giving effect to the previously noted amendment to the contingent consideration achievement levels and milestone dates, the contingent consideration obligation is valued at $ 20,909 and $ 27,202 as of September 30, 2020 and September 30, 2019, respectively. +- 54 - +Table of Contents +The following table provides information by level for financial assets and liabilities that are measured at fair value on a +recurring +basis: +Fair Value Measurements Using +Inputs Considered as +Carrying +Value +Level 1 +Level 2 +Level 3 +Interest rate swaps (see Note 6) - +As of September 30, 2020 +$ +( 713 +) +$ +— +$ +( 713 +) +$ +— +As of September 30, 2019 +$ +— +$ +— +$ +— +$ +— +Contingent consideration - +As of September 30, 2020 +$ +( 20,909 +) +$ +— +$ +— +$ +( 20,909 +) +As of September 30, 2019 +$ +( 27,202 +) +$ +— +$ +— +$ +( 27,202 +) +(k) +Research and Development Costs +- Research and development costs are charged to expense as incurred. Research and development costs include, among other things, salaries and wages for research scientists, materials and supplies used in the development of new products, costs for development of instrumentation equipment, costs for clinical trials, and costs for facilities and equipment. +(l) +Income Taxes +- +The provision for income taxes includes federal, foreign, state and local income taxes currently payable and those deferred because of temporary differences between income for financial reporting and income for tax purposes. We prepare estimates of permanent and temporary differences between income for financial reporting purposes and income for tax purposes. These differences are adjusted to actual upon filing of our tax returns, typically occurring in the third and fourth quarters of the current fiscal year for the preceding fiscal year’s estimates. +We account for uncertain tax positions using a benefit recognition model with a +two-step +approach: (i) a +more-likely-than-not +recognition criterion; and (ii) a measurement attribute that measures the position as the largest amount of tax benefit that is greater than 50 % likely of being ultimately realized upon ultimate settlement. If it is not more likely than not that the benefit will be sustained on its technical merits, no benefit is recorded. We recognize accrued interest related to unrecognized tax benefits as a portion of our income tax provision in the Consolidated Statements of Operations. See Note +7 +. +(m) +Stock-Based Compensation +- We recognize compensation expense for all share-based awards made to employees, based upon the fair value of the share-based award on the date of the grant. See Note +8 +(b). +(n) +Comprehensive Income (Loss) +- Comprehensive income (loss) represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders. As reflected in the accompanying Consolidated Statements of Comprehensive Income, our comprehensive income is comprised of net earnings, foreign currency translation, unrecognized gain on termination of our previous cash flow hedge, and the income taxes thereon. +(o) +Shipping and Handling Costs +- Shipping and handling costs invoiced to customers are included in net revenues. Costs to distribute products to customers, including freight costs, warehousing costs, and other shipping and handling activities are included in cost of sales. +(p) +Non-Income +Government-Assessed Taxes +- We classify all +non-income, +government-assessed taxes (sales, use and value-added) collected from customers and remitted by us to appropriate revenue authorities, on a net basis (excluded from net revenues) in the accompanying +Consolidated +Statements of Operations. +- 55 - +Table of Contents +(q) +Recent Accounting Pronouncements – +Pronouncements Adopted +On October 1, 2019, the Company adopted ASC 842, +Leases +. ASC 842 was issued to increase transparency and comparability among entities by recognizing +right-of-use +assets (“ROU assets”) and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The Company elected to adopt ASC 842 effective October 1, 2019 using the modified retrospective transition method, which was applied to +leases that +existed +or will be +entered +into on or after such date, with no adjustment made to prior comparative periods. The comparative +periods +presented herein reflect the former lease accounting guidance and the required comparative disclosures are included in Note 5, +“Leasing Arrangements” +. There was no cumulative-effect adjustment to beginning retained earnings as a result of adopting ASC 842, and additional operating lease ROU assets and obligations of approximately $ +5,880 +were recognized as of October 1, 2019. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. The Company elected the package of practical expedients permitted under the new guidance to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to October 1, 2019. Additionally, the elections were made to not use hindsight to determine lease terms and to not separate +non-lease +components within the lease portfolio. See Note 5 for further information. +Pronouncements Issued but Not Yet Adopted as of September 30, 2020 +In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) +No. 2020-04, +Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting +, to provide temporary optional guidance relating to reference rate reform, particularly as it relates to easing the potential burden resulting from the expected discontinuation of the LIBOR rate. The guidance provides practical expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met, which may be applied through December 31, 2022. The Company plans to apply this guidance to such transactions and modifications of arrangements but does not expect application to have a material impact on financial condition, results of operations or cash flows. +In June 2016, the FASB issued ASU +2016-13, +Measurement of Credit Losses +on Financial Instruments +, which changes the impairment model used to measure credit losses for most financial assets. We will be required to use a new forward-looking expected credit loss model that will replace the existing incurred credit loss model for our accounts receivable. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years (fiscal 2021 for the Company), with early adoption permitted. The Company does not anticipate that the adoption of this guidance will have a material impact on its consolidated financial statements. +(r) +Reclassifications - +Certain reclassifications have been made to the prior fiscal year financial statements to conform to the current year presentation. Such reclassifications had no impact on net earnings or shareholders’ equity. +(2) +Business Combinations +Acquisition of Exalenz +On April 30, 2020 (“the acquisition date”), we acquired 100 % of the outstanding common shares and voting interest of Exalenz Bioscience Ltd. (“Exalenz”), a Modi’in, Israel based provider of the BreathID Breath Test Systems (“BreathID”), a breath test platform for the detection of +Helicobacter pylori. +Cash consideration totaled 168.6 million New Israeli Shekels (“NIS”), which equated to $ 48,237 at the date of closing. Including debt assumed and repaid shortly after closing, the total consideration transferred was $ 56,305 . To finance the acquisition, we utilized cash and equivalents on hand and proceeds drawn from our revolving credit facility (see Note 6). +In anticipation of the transaction, we executed forward currency contracts to acquire the NIS required for the acquisition. As a result, the net cash outlay for the transaction prior to the repayment of debt was $ 47,392 . The settlement of the currency contracts resulted in an $ 845 gain, which is reflected within other income in the Consolidated Statement of Operations for the year ended September 30, 2020. +- 56 - +Table of Contents +As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $ 24,466 was recorded in connection with this acquisition, none of which will be deductible for U.S. tax +purposes. The goodwill results largely from our ability to market and sell the BreathID system through our established customer base and distribution channels. The Consolidated Statement of Operations for the year ended September 30, 2020 included $ +3,890 +of acquisition-related costs related to the Exalenz acquisition, which are reflected in operating expenses. +The Company’s fiscal 2020 consolidated results include $ 4,206 of net revenues and $ 1,911 of net loss from Exalenz since the date of acquisition. These results, which are reported as part of the Diagnostics segment, include $ 1,120 of amortization of specific identifiable assets recorded in the opening balance sheet, including a +non-compete +agreement, trade name, technology and customer relationships. +The recognized preliminary amounts of identifiable assets acquired and liabilities assumed in the acquisition of Exalenz are as follows: +PRELIMINARY +April 30, +2020 +(as initially +reported) +Measurement +Period +Adjustments +April 30, +2020 +(as adjusted) +Fair value of assets acquired - +Cash +$ +5,006 +$ +— +$ +5,006 +Accounts receivable +637 +— +637 +Inventories +4,329 +— +4,329 +Other current assets +851 +1,825 +2,676 +Property, plant and equipment +544 +76 +620 +Goodwill +29,288 +( 4,822 +) +24,466 +Other intangible assets (estimated useful life): +Non-compete +agreement ( 5 years) +120 +( 10 +) +110 +Trade name ( 10 years) +3,540 +320 +3,860 +Technology ( 15 years) +5,590 +530 +6,120 +Customer relationships ( 10 years) +19,370 +1,270 +20,640 +Right-of-use +assets +1,358 +( 47 +) +1,311 +Deferred tax assets, net +5,566 +1,151 +6,717 +76,199 +293 +76,492 +Fair value of liabilities assumed - +Accounts payable and accrued expenses (including +c +urrent portion of lease and government grant +o +bligations) +7,757 +251 +8,008 +Long-term lease obligations +1,054 +42 +1,096 +Long-term government grant obligations +10,792 +— +10,792 +Other +non-current +liabilities +291 +— +291 +19,894 +293 +20,187 +Total consideration paid (including $ 8,068 to pay +off long-term debt) +$ +56,305 +$ +— +$ +56,305 +As indicated, the allocation of the purchase price is preliminary, pending final completion of valuations. Currently, we are primarily assessing the results of the valuation of intangible assets and the tax implications thereon. Upon completion of these analyses, any required adjustments are expected to result in an amount being reclassified from goodwill to deferred taxes, as applicable. +- 57 - +Table of Contents +Acquisition of Business of GenePOC +On June 3, 2019, we acquired the business of GenePOC Inc. (“GenePOC”), a Quebec City, Quebec Province, Canada based provider of molecular diagnostic instruments and assays. The purchase agreement originally contemplated a maximum total consideration of up to $ 120,000 , which was estimated at a total fair value of $ 77,526 as of the acquisition date. During fiscal 2020, an agreement was reached to amend certain terms of the original contingent consideration achievement levels and milestone dates, such that the total consideration will be no greater than $ 114,000 . Pursuant to the purchase agreement, as amended, the maximum consideration is comprised of the following: +(i) +a $ 50,000 cash payment on June 3, 2019, subject to a working capital adjustment and a holdback of $ 5,000 to secure selling party’s performance of certain post-closing obligations; +(ii) +one $ 4,000 installment and one $ 10,000 installment contingent upon the achievement of certain product development milestones if achieved by September 30, 2022 (originally two +$ 10,000 installments contingent upon the achievement of certain product development milestones if achieved by September 30, 2020 and March 31, 2021 , +respectively); and +(iii) +up to $ 50,000 of contingent consideration payable if certain financial performance targets are achieved during the twelve-month period ending September 30, 2022. +As previously noted, the fair value of the contingent consideration identified in (ii) and (iii) above was $ 27,202 and $ 20,909 as of the acquisition date and September 30, 2020, respectively. +The total of the holdback identified in (i) above and the currently estimated value of the contingent consideration identified in (ii) and (iii) above are reflected within the accompanying Condensed Consolidated Balance Sheets as of September 30, 2020 as follows: +Current liabilities +- $ 12,619 +Reflects anticipated settlement of the holdback amount in the first quarter of fiscal 2021 and the first product milestone payment in the fourth quarter of fiscal 2021. +Non-current +liabilities +- $ 13,290 +Reflects anticipated settlement of the second product milestone payment in the first quarter of fiscal 2022 and financial performance targets payments in the first quarter of fiscal 2023. +To finance the acquisition, we utilized +cash and equivalents on hand and proceeds drawn +from our revolving credit facility. As a result of estimated total consideration exceeding the fair value of the net assets acquired, goodwill in the amount of +$ +34,582 +was recorded in connection with this acquisition, most of which will be deductible for U.S. tax purposes ratably over +15 +years. The goodwill results largely from our ability to market and sell GenePOC’s technology and instrument platform through our established customer base and distribution channels. +- 58 - +Table of Contents +The recognized final +amounts of identifiable assets acquired and liabilities assumed in the acquisition of the GenePOC business are as follows: +Fair value of assets acquired - +Accounts receivable +$ +57 +Inventories +1,511 +Other current assets +84 +Property, plant and equipment +1,424 +Goodwill +34,582 +Other intangible assets (estimated useful life): +License agreement ( 10 years) +5,990 +Technology ( 15 years) +34,136 +Government grant ( 1.33 years) +800 +78,584 +Fair value of liabilities assumed - +Accounts payable and accrued expenses +1,058 +Total consideration paid (including contingent +consideration +originally +estimated at $ 27,202 ) +$ +77,526 +Unaudited Pro Forma Information (Exalenz and GenePOC) +The following table provides the unaudited +consolidated +pro +forma +results for the periods presented as if both Exalenz and the business of GenePOC had been acquired as of the beginning of fiscal 2019. Pro forma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future. +Year Ended September 30, +2020 +2019 +Net Revenues +$ +261,131 +$ +214,821 +Net Earnings +$ +45,701 +$ +8,173 +These pro forma amounts have been calculated by including the results of Exalenz and GenePOC, and adjusting the combined results to give effect to the following, as if the acquisitions had been consummated on October 1, 2018, together with the consequential tax effects thereon: +Year Ended September 30, +2020 +2019 +Adjustments to Net Revenues +Exalenz and GenePOC pre-acquisition revenues +$ +7,464 +$ +13,807 +Adjustments to Net Earnings +Exalenz and GenePOC pre-acquisition net losses +$ +( 6,423 +) +$ +( 13,598 +) +Pro forma adjustments: +Meridian acquisition-related costs +3,890 +— +Exalenz transaction-related costs +4,550 +— +Gain on Exalenz purchase price currency contracts +( 845 +) +— +Remove net impact of non-continuing personnel, locations or activities +( 305 +) +3,022 +Incremental depreciation and amortization +( 1,680 +) +( 5,358 +) +Incremental interest costs +, +net +( 183 +) +( 1,477 +) +Tax effects of pro forma +adjustments and recognizing benefit on resulting Exalenz losses +511 +1,202 +Total Adjustments to Net Earnings +$ +( 485 +) +$ +( 16,209 +) +- 59 - +Table of Contents +Supplemental Cash Flow Information +(Non-Cash +Acquisition Consideration) +As noted above, the remaining acquisition consideration obligation related to acquisition of the +GenePOC +business decreased $ 6,293 during fiscal 2020, due in large part to amendment of certain terms of the original contingent consideration achievement levels and milestone dates. As result, such +non-cash +consideration totaled $ 25,909 as of September 30, 2020, down from $ 32,202 as of September 30, 2019. No such items existed in fiscal 2018. +(3) +Restructuring +During the second quarter of fiscal 2018, the Company began implementation of a plan to realign its business structure into two business units, Diagnostics and Life Science, supported by a global corporate team. Since that time and as part of this plan, certain functions and locations within both business units have been streamlined, including: (i) the elimination of certain executive management and commercial sales positions; (ii) the closing of Life Science locations in Taunton, Massachusetts and Singapore, the operations of which were transferred to our existing locations in Memphis, Tennessee and London, England, respectively; and (iii) the transfer of certain functions performed in the Billerica, Massachusetts Diagnostics facility to the corporate headquarters in Cincinnati, Ohio. Further restructuring costs were incurred in fiscal 2019 and fiscal 2020, as refinements to each business unit’s cost structure continued to be made and the Company incurred severance payment obligations relating to the transition of its previous chief financial officer. +As a result of these activities, restructuring costs totaling $ +687 +, $ 2,839 and $ 6,332 were recorded during fiscal 2020, 2019 and fiscal 2018, respectively, the details of which are as follows: +Year Ended September 30, +2020 +2019 +2018 +Severance, other termination benefits and related costs +$ +601 +$ +2,046 +$ +5,012 +Lease and other contract termination fees +86 +54 +353 +Loss on fixed asset disposals and inventory scrap +— +528 +225 +Other +— +211 +742 +Total +$ +687 +$ +2,839 +$ +6,332 +The above table does not include $ 2,374 of CEO transition costs incurred in fiscal 2018, which primarily represents the compensation and benefits for our previous Executive Chairman and CEO, Mr. John A. Kraeutler, throughout fiscal 2018, the period during which we also +had +the compensation and benefits +of +our current CEO, Mr. Jack Kenny, who began employment at the beginning of fiscal 2018. These CEO transition costs and the restructuring costs set forth in the table above comprise the $ 8,706 of restructuring costs set forth in the accompanying Consolidated Statement of Operations for fiscal 2018. +A reconciliation of the changes in the liabilities associated with the restructuring charges from September 30, 2018 through September 30, 2020 is as follows: +Employee +Separation +and +Related +Costs +Lease and +Other +Contract +Termination +Fees +Other +Total +Balance at September 30, 2018 +$ +987 +$ +33 +$ +6 +$ +1,026 +Restructuring charges +2,810 +54 +211 +3,075 +Reversal of prior period accruals +( 401 +) +( 32 +) +( 61 +) +( 494 +) +Payments +( 2,386 +) +( 43 +) +( 42 +) +( 2,471 +) +Balance at September 30, 2019 +$ +1,010 +$ +12 +114 +$ +1,136 +Restructuring charges +642 +86 +— +728 +Reversal of prior period accruals +( 41 +) +— +— +( 41 +) +Payments +( 1,565 +) +( 98 +) +( 114 +) +( 1,777 +) +Balance at September 30, 2020 +$ +46 +$ +— +$ +— +$ +46 +- 60 - +Table of Contents +(4) +Inventories +Inventories are comprised of the following: +As of September 30, +2020 +2019 +Raw materials +$ +11,966 +$ +7,455 +Work-in-process +19,477 +11,504 +Finished goods - instruments +1,594 +935 +Finished goods - kits and reagents +28,227 +19,723 +Total +$ +61,264 +$ +39,617 +(5) +Leasing Arrangements +The Company is party to a number of operating leases, the majority of which are related to office, warehouse and manufacturing space. The related operating lease assets and obligations are reflected within +right-of-use +assets, current operating lease obligations and long-term operating lease obligations on the Consolidated Balance Sheet. +Lease expense +for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. Our Consolidated Statement of Operations for fiscal 2020 reflect +s +lease costs for these operating leases of $ +597 +and $ +1,286 +within cost of sales and operating expenses, respectively. +The amounts charged to expense under operating leases in fiscal 2019 and 2018 total $ 2,372 and $ 2,457 , respectively. +Right-of-use assets obtained during fiscal 2020 in exchange for operating lease liabilities totaled $ 1,600 . +In addition, the Company has periodically entered into other short-term operating leases, generally with an initial term of twelve months or less. These leases are not recorded on the balance sheet and the related lease expense is immaterial for fiscal 2020. +The Company often has options to renew lease terms, with the exercise of lease renewal options generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for our operating leases as of September 30, 2020 was 4.2 years. +The discount rate implicit within our leases is generally not determinable and, therefore, the Company determines the discount rate using its incremental borrowing rate. The weighted average discount rate used to measure our operating leases as of September 30, 2020 was 3.7 %. +Maturities of lease liabilities by fiscal year for the Company’s operating lease liabilities were as follows as of +September +30, 2020: +September +30, +2020 +2021 +$ +2,002 +2022 +1,744 +2023 +1,271 +2024 +978 +2025 +691 +Thereafter +282 +Total lease payments +6,968 +Less amount of lease payment representing interest +( 501 +) +Total present value of lease payments +$ +6,467 +- 61 - +Table of Contents +As of September 30, 2019, future minimum lease payments under noncancelable operating leases were as follows: +September 30, +2019 +2020 +$ +1,528 +2021 +1,451 +2022 +1,293 +2023 +967 +2024 +712 +Thereafter +616 +Total +$ +6,567 +Supplemental Cash Flow Information (Cash Paid for Amounts Included in Measurement of Lease Liabilities) +Operating cash flows from operating lease payments totaled $ 1,693 in fiscal 2020. +(6) +Bank Credit Arrangements +In anticipation of the acquisition of the business of GenePOC (see Note +2 +), on May 24, 2019 the Company entered into a credit facility agreement with a commercial bank. The Company amended the credit facility agreement on February 19, 2020 in anticipation of the Company’s acquisition of Exalenz (see Note +2 +). The credit facility expires in May 2024 , and as amended makes available to the Company a revolving credit facility in an aggregate principal amount not to exceed $ 160,000 (originally $ 125,000 ), with outstanding principal amounts bearing interest at a fluctuating rate tied to, at the Company’s option, either the federal funds rate or LIBOR, resulting in an effective interest rate of 3.30 % and 4.13 % on the credit facility during fiscal 2020 and 2019, respectively. Since entering into the credit facility, +th +ree +draws totaling $ 125,824 +have been made on the credit facility, +with principal repayments in January 2020 and September 2020 of $ 27,000 and $ 30,000 , respectively, resulting +in an outstanding principal balance of $ 68,824 +at +September 30, 2020. +The proceeds from these draws were used to: (i) repay and settle the outstanding principal and interest due on our previously existing $ 60,000 five-year term loan; +and (ii) along with cash on-hand, fund the Exalenz and GenePOC acquisitions. In light of the interest being determined on a variable rate basis, the fair value of the borrowings under the credit facility at both September 30, 2020 and September 30, 2019 approximates the current carrying value reflected in the accompanying Consolidated Balance Sheets. +The revolving credit facility is collateralized by the business assets of the Company’s U.S. subsidiaries and requires compliance with financial covenants that limit the amount of debt obligations and require a minimum level of coverage of fixed charges, as defined in the credit facility agreement. As of September 30, 2020, the Company is in compliance with all covenants. +In order to limit exposure to volatility in the LIBOR interest rate, during March 2020 and June 2020 the Company and the commercial bank entered into three interest rate swap agreements that effectively converted the variable interest rate on $ 50,000 of the outstanding principal to a fixed rate of 2.16 % (at the current credit spread) beginning June 24, 2020, the effective date of the most recent swap agreement. With an initial notional balance of $ 50,000 , the interest rate swap agreements were established with critical terms identical to borrowings under the credit facility, including: +(i) one-month +LIBOR settlement rates, as to be elected by the Company throughout the remaining term of the credit facility; (ii) rate reset dates; and (iii) term/maturity. Consequently, the interest rate swaps have been designated as effective cash flow hedges, with changes in fair values reflected as a separate component of other comprehensive income in the accompanying Consolidated Statements of Comprehensive Income. At September 30, 2020, the fair value of the interest rate swaps was reported as a liability of $ 713 , which is reflected as a +non-current +liability in the accompanying Consolidated Balance Sheet. This fair value was determined by reference to a third-party valuation and is considered a Level 2 input within the fair value hierarchy of valuation techniques. +- 62 - +Table of Contents +In connection with the Company’s term loan repayment in May 2019, the Company also settled the interest rate swap that had been entered into to limit exposure to volatility in the term loan’s LIBOR interest rate. At the time of settlement, the Company received a cash payment in an amount equal to the $ 563 then-current fair value of the interest rate swap. Accordingly, there is no balance for this interest rate swap reflected within assets or liabilities within the accompanying Consolidated Balance Sheets as of September 30, 2020 or September 30, 2019. The fair value of the swap that had been reflected within a separate component of other comprehensive income in the +accompanying Consolidated Statements +of Comprehensive Income, as a result of the interest rate swap having been designated as an effective cash flow hedge, is being released ratably into income through March 31, 2021, the interest rate swap’s original term. +The balance reflected within accumulated other comprehensive income related to the interest rate swap agreements associated with both the current credit facility and the former term loan totaled $ 560 and $ 461 at September 30, 2020 and September 30, 2019, respectively. +Supplemental Cash Flow Information (Interest Paid) +Cash paid for +interest +totaled $ 2,690 , $ 1,405 and $ 1,487 in fiscal 2020, 2019 and +2018, +respectively. +(7) +Income Taxes +(a) +Earnings before income taxes, and the related provision for income taxes for the years ended September 30, 2020, 2019 and 2018 were as follows: +Year Ended September 30, +2020 +2019 +2018 +Domestic +$ +9,068 +$ +23,954 +$ +27,787 +Foreign +50,225 +7,603 +2,593 +Total earnings before income taxes +$ +59,293 +$ +31,557 +$ +30,380 +Provision (credit) for income taxes - +Federal - +Current +$ +1,173 +$ +5,001 +$ +6,030 +Temporary differences +Fixed asset basis differences and depreciation +960 +288 +410 +Intangible asset basis differences and amortization +753 +( 797 +) +( 4,052 +) +Currently +non-deductible +expenses and reserves +( 1,001 +) +241 +1,206 +Stock-based compensation +( 41 +) +( 109 +) +1,379 +Net operating loss carryforwards utilized +26 +69 +61 +Tax credit carryforwards utilized +— +— +181 +Other, net +47 +( 169 +) +( 148 +) +Subtotal +1,917 +4,524 +5,067 +State and local +1,170 +834 +1,066 +Foreign +10,020 +1,817 +398 +Total income tax provision +$ +13,107 +$ +7,175 +$ +6,531 +- 63 - +Table of Contents +(b) +The following is a reconciliation between the statutory U.S. +income +tax rate and the effective rate derived by dividing the provision for income taxes by earnings before income taxes: +Year Ended September 30, +20 +20 +201 +9 +2018 +Computed income taxes at statutory rate +$ +12,452 +21.0 +% +$ +6,627 +21.0 +% +$ +7,443 +24.5 +% +Increase (decrease) in taxes resulting from - +State and local income taxes +773 +1.3 +577 +1.8 +982 +3.2 +U.S. tax law change +— +— +— +— +( 2,655 +) +( 8.7 +) +One-time +repatriation tax +— +— +— +— +876 +2.9 +Foreign-Derived Intangible Income tax +( 136 +) +( 0.2 +) +( 294 +) +( 0.9 +) +— +— +Global Intangible Low Taxed Income tax +4,970 +8.4 +1,119 +3.6 +— +— +Foreign tax credit +( 4,767 +) +( 8.0 +) +( 990 +) +( 3.1 +) +( 15 +) +— +Foreign tax rate differences +( 534 +) +( 0.9 +) +46 +0.1 +( 104 +) +( 0.3 +) +Transaction costs +548 +0.9 +— +— +— +— +Qualified domestic production incentives +— +— +— +— +( 550 +) +( 1.8 +) +Uncertain tax position activity +62 +0.1 +126 +0.4 +( 62 +) +( 0.2 +) +Valuation allowance +( 106 +) +( 0.2 +) +106 +0.3 +( 40 +) +( 0.1 +) +Stock-based compensation +41 +0.1 +( 33 +) +( 0.1 +) +447 +1.4 +Other, net +( 196 +) +( 0.4 +) +( 109 +) +( 0.4 +) +209 +0.6 +$ +13,107 +22.1 +% +$ +7,175 +22.7 +% +$ +6,531 +21.5 +% +On December 22, 2017, the United States +enacted +tax reform +legislation +commonly known as the Tax Cuts and Jobs Act (the “tax reform act”) including the Global Intangible Low Taxed Income tax (“GILTI”), which requires the Company to include in U.S. income certain foreign earnings that do not exceed a 10% return on foreign investment. For the year ended September 30, 2020, the Company’s U.S. GILTI inclusion was $ 23,666 , resulting in a permanent tax expense of $ 4,970 , which is offset by a foreign tax credit benefit of $ 4,767 . During fiscal 2020, the Internal Revenue Service issued Final Treasury Regulations related to the GILTI tax. Such regulations served to reduce the Company’s fiscal 2019 GILTI inclusion, resulting in +an additional +$ 220 +federal +tax benefit +related to fiscal 2019. +For the year ended September 30, 2019, the Company’s U.S. GILTI inclusion totaled $ 5,328 , resulting in a permanent tax expense and a foreign tax credit benefit of $ 1,119 and $ 990 , respectively. The Company has elected to take the GILTI into account in the year it occurs. +(c) +The components of net deferred taxes were as follows: +As of September 30, +2020 +2019 +Deferred tax assets - +Valuation reserves and +non-deductible +expenses +$ +4,848 +$ +1,253 +Stock compensation expense not deductible +1,804 +2,158 +Net operating loss and tax credit carryforwards +10,164 +494 +Basis difference in equity-method investee +302 +302 +Inventory basis differences +382 +289 +Other +207 +125 +Subtotal +17,707 +4,621 +Less valuation allowance +( 302 +) +( 408 +) +Deferred tax assets +17,405 +4,213 +Deferred tax liabilities - +Fixed asset basis differences and depreciation +( 4,269 +) +( 2,205 +) +Intangible asset basis differences and amortization +( 9,293 +) +( 4,374 +) +Deferred tax liabilities +( 13,562 +) +( 6,579 +) +Net deferred tax +assets ( +liabilities +) +$ +3,843 +$ +( 2,366 +) +- 64 - +Table of Contents +For income tax purposes, we have recorded deferred tax assets related to operating loss and tax credit carryforwards in both U.S. and foreign jurisdictions totaling $ 205 and $ 9,959 , respectively, as of September 30, 2020. At September 30, 2019, such deferred tax assets totaled $ 231 and $ 263 , respectively. The operating loss carryforwards in foreign jurisdictions +, the majority of wh +ich relate to Isra +e +l, +have +no expiration date. The operating loss carryforwards in the U.S. expire in 2023 at the federal level, and in 2036 at the state level. The aggregate amount of federal, state and foreign operating loss carryforwards +separately +totaled $ 243 , $ 2,432 and $ 78,332 , respectively, at September 30, 2020. The use of the federal and state losses is limited by the change of ownership provisions of the Internal Revenue Code. +The Company has evaluated its assertion as to whether earnings of foreign subsidiaries are indefinitely reinvested. The Company has removed its indefinite reinvestment assertion on the foreign subsidiary earnings and recognized a deferred tax liability of $ 185 to reflect the corporate and withholding tax impact of a presumed repatriation of foreign earnings. +The realization of deferred tax assets is dependent upon the generation of future taxable income in the applicable jurisdictions. We have considered the levels of currently anticipated +pre-tax +income in U.S. and foreign jurisdictions in assessing the required level of the deferred tax asset valuation allowance including the characterization of the income as ordinary or capital. Taking into consideration historical and current operating results, and other factors, we believe that it is more likely than not that the net deferred tax asset of $ 17,405 will be realized. The amount of the net deferred tax asset considered realizable, however, could be reduced in future years if estimates of future taxable income are reduced. +We utilize a comprehensive model for the recognition, measurement, presentation and disclosure of uncertain tax positions, assuming full knowledge of all relevant facts by the applicable tax authorities. The total amount of unrecognized tax benefits at September 30, 2020 and September 30, 2019 related to such positions was $ 568 and $ 509 , respectively, of which $ 494 would favorably impact the effective tax rate if recognized. We generally recognize interest and penalties related to uncertain tax positions as a component of our income tax provision. During fiscal 2020 and 2019, such penalties and interest totaled approximately $ 20 and $ 34 , respectively. We had approximately $ 138 accrued for the payment of interest and penalties at September 30, 2020 compared to $ 118 accrued at September 30, 2019. The amount of our liability for uncertain tax positions expected to be paid or settled in the next 12 months is uncertain. +A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: +2020 +2019 +Unrecognized income tax benefits at beginning of year +$ +509 +$ +388 +Additions for tax positions of prior years +— +83 +Reductions for tax positions of prior years +— +( 38 +) +Additions for tax positions of current year +104 +138 +Tax examination and other settlements +( 45 +) +( 62 +) +Unrecognized income tax benefits at end of year +$ +568 +$ +509 +We are subject to examination by the tax authorities in the U.S. (both federal and state) and the countries of Australia, Belgium, Canada, China, England, France, Germany, Holland, Israel and Italy. In the U.S., tax years subsequent to fiscal 2016 remain open . In countries outside the U.S., open tax years generally range from fiscal 2015 and forward . However, in Australia and Belgium, the utilization of local net operating loss carryforwards extends the statute of limitations for examination well into the foreseeable future. To the extent that adjustments result from the completion of these examinations or the lapsing of statutes of limitation, they will affect tax liabilities in the period known. We believe that the results of any tax authority examinations would not have a significant adverse impact on our financial condition or results of operations. +Supplemental Cash Flow Information (Income Taxes Paid) +Cash paid for income taxes totaled $ 9,816 , $ 7,840 and $ 6,555 in fiscal 2020, 2019 and 2018, respectively. +- 65 - +Table of Contents +( +8 +) +Employee Benefits +(a) +Savings and Investment Plan +- We have a profit sharing and retirement savings plan covering substantially all full-time U.S. employees. Profit sharing contributions to the plan, which are discretionary, are approved by the board of directors. The plan permits participants to contribute to the plan through salary reduction. Under terms of the plan, we match 100 % of an employee’s contributions, up to a maximum match of 4 % of eligible compensation. Our discretionary and matching contributions to the plan amounted to approximately $ 2,434 , $ 1,979 and $ 2,118 , during fiscal 2020, 2019 and 2018, respectively. +(b) +Stock-Based Compensation Plans +- During fiscal 2020, we had two active stock-based compensation plans, the 2004 Equity Compensation Plan, which became effective December 7, 2004, as amended (the “2004 Plan”) and the 2012 Stock Incentive Plan, which became effective January 25, 2012 (the “2012 Plan”). +Each of the 2004 Plan and 2012 Plan authorized the granting of new shares for options, restricted shares or restricted share units for up to 3,000 shares, with the +non-granted +portion of the 2004 Plan permitted to be carried forward and added to the 2012 Plan authorized limit. As of September 30, 2020, we have granted 1,255 and 2,702 shares under the 2004 Plan and 2012 Plan, respectively, thereby resulting in a remaining authorized limit of 2,043 shares. Options may be granted at exercise prices not less than 100 % of the closing market value of the underlying common shares on the date of grant and have maximum terms up to ten years . Vesting schedules for options, restricted shares and restricted share units are established at the time of grant and may be set based on future service periods, achievement of performance targets or a combination thereof. All options contain provisions restricting their transferability and limiting their exercise in the event of termination of employment or the disability or death of the optionee. We recognize compensation expense for all share-based payments made to employees, based upon the fair value of the share-based payment on the date of the grant. +During fiscal years 2018 through 2020, we granted, in the aggregate for the three-year period, approximately 1,040 restricted share units (with weighted-average grant date fair values of $ 14.65 per share in fiscal 2018, $ 18.66 per share in fiscal 2019 and $ 10.13 per share in fiscal 2020) to certain employees, including current CEO, Mr. Jack Kenny, as separately detailed below. Aside from those granted to Mr. Kenny, the units granted +in fiscal 2020 and 2019 were generally time-vested restricted share units vesting in total on the third anniversary of the grant date. During fiscal 2018, generally half of each employee’s grant was time-vested restricted share units vesting in total on the fourth anniversary of the grant date, with the remaining half being subject to attainment of a specified earnings target for each fiscal period. While dividend equivalents were paid on these units throughout fiscal 2018, the targets for fiscal 2018 were not met and the performance-based portion of these restricted share units granted have been cancelled. +During fiscal 2020 +, +in connection with Mr. Kenny’s Amended and Restated Employment Agreement effective October 1, 2019, we granted to Mr. Kenny: (i) options to purchase approximately 198 shares of common stock of the Company (with a grant date fair value of $ 3.38 per share) vesting on a pro rata basis over the three years ending October 1, 2022 ; and (ii) approximately 100 restricted share units (with a grant date fair value of $ 10.10 per share) vesting 100 % on the October 1, 2022, which are included within the restricted share units noted above. +During fiscal 2018 in connection with +Mr. +Kenny’ +s +October 9, 2017 employment, we granted to Mr. Kenny: (i) options to purchase +100 +shares of common stock of the Company (with a grant date fair value of $ +3.19 +per share) vesting on a pro rata basis over +four years +; and (ii) +13 +restricted share units (with a grant date fair value of $ +14.50 +per share) vesting +100 +% on the second anniversary of the grant. Also during fiscal 2018 in connection with his Amended and Restated Employment Agreement, we granted to our former Chairman and CEO at that time, Mr. John A. +Kraeutler +, +25 +restricted share units (with a grant date fair value of $ +15.30 +per share) to be earned only +if specified revenue and earnings per share targets were achieved for fiscal 2018. As a result of the fiscal 2018 performance targets related to this grant being achieved, these restricted share units were fully vested and the related shares were paid to Mr. Kraeutler in November 2018. +- 66 - +Table of Contents +Giving effect to these grants, cancellations and certain other activities for restricted shares and restricted share units throughout the years, including conversions to common shares, forfeitures, and new hire and employee promotion grants, approximately 603 restricted share units remain outstanding as of September 30, 2020, with a weighted-average grant date fair value of $ 13.27 per share, a weighted-average remaining vesting period of 1.53 years and an aggregate intrinsic value of $ 10,237 . The weighted-average grant date fair value of the +approximate 157 +restricted share units that vested during fiscal 2020 was $ 16.73 per share. +The amount of stock-based compensation expense reported was $ 3,802 , $ 3,251 and $ 3,402 in fiscal 2020, 2019 and 2018, respectively. The fiscal 2020 expense is comprised of $ 1,006 related to stock options and $ 2,796 related to restricted share units; the fiscal 2019 expense is comprised of $ 542 related to stock options and $ 2,709 related to restricted share units; and the fiscal 2018 expense is comprised of $ 793 related to stock options and $ 2,609 related to restricted share units. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $ 898 , $ 572 and $ 303 , for fiscal 2020, 2019 and 2018, respectively. As of September 30, 2020, we expect future stock compensation expense for unvested options and unvested restricted share units to total $ 515 and $ 3,122 , respectively, which will be recognized during fiscal years 2021 through 2023 . +We recognize compensation expense only for the portion of shares that we expect to vest. As such, we apply estimated forfeiture rates to our compensation expense calculations. These rates have been derived using historical forfeiture data, stratified by several employee groups. During fiscal 2020, 2019 and 2018, we recorded $ 148 , $ 127 and $ 106 , respectively, +in stock compensation expense to adjust estimated forfeiture rates to actual, noting that total stock compensation expense for each of fiscal 2020, 2019 and 2018 reflects the effect of terminations made in connection with the restructuring activities discussed in Note 3. +We have elected to use the Black-Scholes option pricing model to determine grant-date fair value for stock options, with the following assumptions: (i) expected share price volatility based on the average of Meridian’s historical volatility over the options’ expected lives and implied volatility based on the value of tradable call options; (ii) expected life of options based on contractual lives, employees’ historical exercise behavior and employees’ historical post-vesting employment termination behavior; (iii) risk-free interest rates based on treasury rates that correspond to the expected lives of the options; and (iv) dividend yield based on the expected yield on underlying Meridian common stock. +Year ended September 30, +2020 +2019 +2018 +Risk-free interest rates +1.60 +% +2.99 +% +2.10 +% +Dividend yield +0 +% +3.3 +% +3.3 +% +Life of option +6.51 yrs. +6.51 yrs. +6.47 yrs. +Share price volatility +34 +% +29 +% +30 +% +Forfeitures (by employee group) +0 %- 16 % +0 %- 16 % +0 %- 16 % +A summary of the status of our stock option plans as of September 30, 2020 and changes during the year ended September 30, 2020, is presented in the table and narrative below: +Options +Wtd Avg +Exercise +Price +Wtd Avg +Remaining +Life (Yrs) +Aggregate +Intrinsic +Value +Outstanding beginning of period +990 +$ +17.36 +Grants +367 +10.07 +Exercises +( 203 +) +17.83 +Forfeitures +( 2 +) +14.74 +Cancellations +( 49 +) +21.62 +Outstanding end of period +1,103 +$ +14.67 +6.89 +$ +3,483 +Exercisable end of period +674 +$ +16.86 +5.80 +$ +984 +- 67 - +Table of Contents +A summary of the status of our nonvested options as of September 30, 2020, and changes during the year ended September 30, 2020, is presented below: +Options +Weighted- +Average +Grant Date +Fair Value +Nonvested beginning of period +209 +$ +3.24 +Granted +367 +3.54 +Vested +( 145 +) +3.64 +Forfeitures +( 2 +) +3.11 +Nonvested end of period +429 +$ +3.36 +The weighted average grant-date fair value of options granted was $ 3.54 , $ 3.61 and $ 3.27 for fiscal 2020, 2019 and 2018, respectively. The total intrinsic value of options exercised was $ 1,585 , $ 62 and $ 2 for fiscal 2020, 2019 and 2018, respectively. The total grant-date fair value of options that vested during fiscal 2020, 2019 and 2018 was $ 528 , $ 735 and $ 580 , respectively. +Cash received from options exercised was $ 3,559 , $ 443 and $ 183 for fiscal 2020, 2019 and 2018, respectively. +(9) +Contingent Obligations and +Non-Current +Liabilities +In connection with the acquisition of Exalenz and as disclosed in Note 2, the Company assumed a number of Israeli government grant obligations. The repayment of the grants, along with interest incurred at varying stated fixed rates based on LIBOR at the time each grant was received (ranging from 0.58 % to 6.60 %), is not dictated by an established repayment schedule. Rather, the grants and related interest are required to be repaid using 3 % of the revenues generated from the sales of BreathID products, with the timing of repayment contingent upon the level and timing of such revenues. In addition, the grants have no collateral or financial covenant provisions generally associated with traditional borrowing instruments. As such, these grant obligations and related accrued interest are considered contingent obligations under ASC +805-20 +and, therefore, are measured, recognized and presented in both the September 30, 2020 and preliminary purchase accounting opening balance sheets at their estimated amounts to be paid. These obligation amounts total $ 11,124 as of September 30, 2020, which is reflected on the Consolidated Balance Sheet within current liabilities ($ 600 ) and +non-current +liabilities ($ 10,524 ). +Additionally, the Company has provided certain post-employment benefits to its former CEO, and these obligations total $ 1,840 and $ 1,917 at September 30, 2020 and 2019, respectively. In addition, we are required by the governments of certain foreign countries in which we operate to maintain a level of accruals for potential future severance indemnity. These reserves total $ 814 and $ 702 at September 30, 2020 and 2019, respectively. +(10) +Reportable Segments and Major Concentration Data +Our reportable segments are Diagnostics and Life Science. The Diagnostics segment consists of: (i) manufacturing operations for infectious disease products in Cincinnati, Ohio; Quebec City, Canada; and Modi’in, Israel; (ii) manufacturing operations for blood chemistry products in Billerica, Massachusetts (near Boston); and (iii) the sale and distribution of diagnostics products domestically and abroad. +The Life Science segment consists of: (i) manufacturing operations in Memphis, Tennessee; Boca Raton, Florida; London, England; and Luckenwalde, Germany; and (ii) the sale and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents domestically and abroad, including a sales and business development facility, with outsourced distribution capabilities, in Beijing, China to pursue revenue opportunities in Asia. +- 68 - +Table of Contents +Two Diagnostics customers accounted for 10 % and 11 %, respectively, of consolidated net revenues in fiscal 2018, with no individual customers from either reportable segment accounting for 10% or more of consolidated net revenues in either fiscal 2020 or fiscal 2019. However, during fiscal 2020, reportable segment revenues were concentrated as follows: +Diagnostics Segment +Two diagnostics distributors: 23 % of segment revenues; 12 % of consolidated revenues +Life Science Segment +Three diagnostic manufacturers: +27 % of segment revenues; 14 % of consolidated revenues +Accounts receivable from +one of the +Diagnostics customers accounted for 11 % of consolidated accounts receivable at September 30, +2019, while one of the Life Science customers accounted for +15 % of consolidated accounts receivable at September 30, 2020. +Revenue generated by the Company outside of the U.S. and its territories totaled approximately $ 121,596 , $ 74,193 and $ 71,494 in fiscal 2020, 2019 and 2018, respectively, and our three major product families – gastrointestinal, respiratory illnesses and blood chemistry – accounted for 39 %, 57 % and 59 % of consolidated net revenues in fiscal 2020, 2019 and 2018, respectively. In addition, products related to +COVID-19 +accounted for approximately 28 % of consolidated fiscal 2020 revenues. +We currently purchase on a sole-source basis from a U.S. manufacturer the instruments on which our Alethia molecular testing platform operates, and from an Australian manufacturer the instruments on which our Curian testing platform operates. +- 69 - +Table of Contents +Significant revenue information by country for the +Diagnostics +and Life Science segments is as follows. Revenues are attributed to the geographic area based on the location to which the product is delivered. +Year Ended September 30, +2020 +2019 +2018 +United States and territories +$ +95,382 +$ +107,890 +$ +121,609 +Italy +9,797 +10,911 +10,398 +United Kingdom +2,312 +2,396 +2,340 +France +2,238 +2,446 +2,353 +Belgium +1,440 +1,468 +1,711 +Holland +1,183 +1,413 +1,454 +Japan +848 +1,572 +1,307 +Other countries +7,932 +8,586 +9,282 +Total Diagnostics +$ +121,132 +$ +136,682 +$ +150,454 +Year Ended September 30, +2020 +2019 +2018 +United States and territories +$ +36,689 +$ +18,931 +$ +20,468 +China +19,047 +8,464 +8,347 +United Kingdom +14,765 +4,709 +5,201 +Germany +14,190 +12,663 +8,108 +Spain +7,242 +4,414 +4,187 +Australia +5,957 +3,458 +3,631 +France +5,579 +2,200 +2,040 +Italy +4,067 +1,357 +971 +Japan +3,707 +1,624 +1,932 +Holland +3,212 +710 +715 +Indonesia +3,027 +169 +162 +Turkey +2,819 +290 +188 +Finland +2,518 +500 +467 +India +2,099 +143 +251 +South Korea +1,908 +1,134 +2,044 +Other countries +5,709 +3,566 +4,405 +Total Life Science +$ +132,535 +$ +64,332 +$ +63,117 +In locations outside the U.S., the Company’s identifiable assets were concentrated as follows at the end of +the +most recent fiscal years, with no additional country’s total of assets exceeding $ 5,000 : +As of September 30, +2020 +2019 +Israel +$ +70,097 +$ +— +United Kingdom +27,373 +22,963 +Germany +12,877 +7,141 +Canada +9,865 +6,807 +Italy +7,858 +7,557 +- 70 - +Table of Contents +Segment information for the interim periods is as +follows +: +Diagnostics +Life Science +Corporate(1) +Eliminations(2) +Total +Fiscal 2020 +Net revenues - +Third-party +$ +121,132 +$ +132,535 +$ +— +$ +— +$ +253,667 +Inter-segment +326 +261 +— +( 587 +) +— +Operating income +3,885 +68,826 +( 11,437 +) +50 +61,324 +Depreciation and amortization +11,451 +2,116 +— +— +13,567 +Capital expenditures +1,850 +1,449 +— +— +3,299 +Goodwill +94,855 +19,331 +— +— +114,186 +Other intangible assets, net +83,179 +18 +— +— +83,197 +Total assets +306,812 +98,483 +— +( 34 +) +405,261 +Fiscal 2019 +Net revenues - +Third-party +$ +136,682 +$ +64,332 +$ +— +$ +— +$ +201,014 +Inter-segment +462 +361 +— +( 823 +) +— +Operating income +25,390 +17,581 +( 10,373 +) +101 +32,699 +Depreciation and amortization +7,676 +2,288 +— +— +9,964 +Capital expenditures +2,049 +1,748 +— +— +3,797 +Goodwill +70,395 +18,846 +— +— +89,241 +Other intangible assets, net +59,807 +436 +— +— +60,243 +Total assets +255,169 +70,392 +— +( 83 +) +325,478 +Fiscal 2018 +Net revenues - +Third-party +$ +150,454 +$ +63,117 +$ +— +$ +— +$ +213,571 +Inter-segment +392 +397 +— +( 789 +) +— +Operating income +34,603 +11,765 +( 15,076 +) +292 +31,584 +Depreciation and amortization +6,557 +2,131 +— +— +8,688 +Capital expenditures +2,477 +1,724 +— +— +4,201 +Goodwill +35,213 +19,424 +— +— +54,637 +Other intangible assets, net +22,068 +1,045 +— +— +23,113 +Total assets +180,978 +70,341 +— +58 +251,377 +(1) +Includes Restructuring and Selected Legal Costs of $ 2,080 , $ 2,596 and $ 7,779 in fiscal years 2020, 2019 and 2018, respectively. +(2) +Eliminations consist of inter-segment transactions. +A reconciliation of segment operating income to consolidated earnings before income taxes for the years +ended September 30, 2020, 2019 and 2018 is as follows: +Year Ended September 30, +2020 +2019 +2018 +Segment operating income +$ +72,761 +$ +43,072 +$ +46,660 +Corporate expenses +( 11,437 +) +( 10,373 +) +( 15,076 +) +Interest income +142 +681 +418 +Interest expense +( 2,632 +) +( 1,945 +) +( 1,520 +) +Other, net +459 +122 +( 102 +) +Consolidated earnings before income taxes +$ +59,293 +$ +31,557 +$ +30,380 +Transactions between segments are accounted for at established intercompany prices for internal and management purposes with all intercompany amounts eliminated in consolidation. +- 71 - +Table of Contents +(11) +Commitments and Contingent +Obligations +(a) +Royalty Commitments - +We have entered into various license agreements that require payment of royalties based on a specified percentage of the sales of licensed products. Approximately 81 % of our royalty expenses relate to our Diagnostics operating segment, where the royalty rates range from 3 % to 8 %. These royalty expenses are recognized on an +as-earned +basis and recorded in the year earned as a component of cost of sales. Annual royalty expenses associated with these agreements were approximately $ 1,860 , $ 2,107 and $ 2,579 for the fiscal years ended September 30, 2020, 2019 and 2018, respectively. +(b) +Purchase Commitments +- +Excluding the operating lease commitments reflected in Note 5, we have purchase commitments primarily for inventory and service items as part of the normal course of business. Commitments made under these obligations are $ 26,315 for fiscal 2021 and $ 1,376 for fiscal 2022 through fiscal 2023. No purchase commitments have been made beyond fiscal 2023. +(c) +Litigation - +We are a party to various litigation matters from time to time that we believe are in the normal course of business. The ultimate resolution of these routine matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows. Additionally, the Company has also become a party to certain legal matters that are somewhat outside the normal course of business. +On April 17, 2018, Magellan received a subpoena from the United States Department of Justice (“DOJ”) regarding its LeadCare product line. The subpoena outlines documents to be produced, and the Company is cooperating with the DOJ in this matter. The Company maintains rigorous policies and procedures to promote compliance with applicable regulatory agencies and requirements and is working with the DOJ to promptly respond to the subpoena, including responding to additional information requests. The Company has executed tolling agreements to extend the statute of limitations. The Company cannot predict when the investigation will be resolved, the outcome of the investigation, or its potential impact on the Company. Approximately $ 2,035 , $ 1,585 and $ 775 of expense for attorneys’ fees related to this matter is included within the Consolidated Statements of Operations for fiscal 2020, 2019 and 2018, respectively. +( +d +) +Indemnifications - +In conjunction with certain contracts and agreements, we provide routine indemnifications related to our performance obligations. The terms of these indemnifications range in duration and in some circumstances are not explicitly defined. The maximum obligation under some such indemnifications is not explicitly stated and, as a result of our having no history of paying such indemnifications, cannot be reasonably estimated. We have no t made any payments for these indemnifications and no liability is recorded at September 30, 2020 or September 30, 2019. +(12) +Quarterly Financial Data (Unaudited) +The sum of the earnings per common share may not equal the corresponding annual amounts due to interim quarter rounding. +For the Quarter Ended in Fiscal 2020 +December 31 +March 31 +June 30 +September 30 +Net revenues +$ +47,421 +$ +57,296 +$ +84,797 +$ +64,153 +Gross profit +27,557 +34,455 +55,905 +38,331 +Net earnings +2,827 +9,359 +27,507 +6,493 +Basic earnings per common share +0.07 +0.22 +0.64 +0.15 +Diluted earnings per common share +0.07 +0.22 +0.64 +0.15 +Cash dividends per common share +— +— +— +— +- 72 - +Table of Contents +For the Quarter Ended in Fiscal 2019 +December 31 +March 31 +June 30 +September 30 +Net revenues +$ +51,480 +$ +50,248 +$ +48,440 +$ +50,846 +Gross profit +31,836 +29,406 +28,304 +29,182 +Net earnings +8,106 +7,094 +5,079 +4,103 +Basic earnings per common share +0.19 +0.17 +0.12 +0.10 +Diluted earnings per common share +0.19 +0.17 +0.12 +0.10 +Cash dividends per common share +0.125 +0.125 +— +— +ITEM 9. +CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS +ON ACCOUNTING AND FINANCIAL DISCLOSURE +Not applicable. +ITEM 9A. +CONTROLS AND PROCEDURES +As of September 30, 2020, an evaluation, excluding the internal controls of wholly-owned subsidiaries Meridian Bioscience Israel Holding Ltd. and Exalenz Bioscience, Inc. (collectively “Exalenz”), which were acquired during fiscal 2020, was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule +13a-15(b) +and +15d-15(b) +promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2020. There have been no changes in our internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other factors that could significantly affect internal control subsequent to September 30, 2020. +Our internal control report is included in this Annual Report on Form +10-K +after Item 8, under the caption “Management’s Report on Internal Control over Financial Reporting.” +ITEM 9B. +OTHER INFORMATION +Not applicable. +- 73 - +Table of Contents +PART III. +ITEM 10. +DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE +Information about our directors and officers may be found under the captions “Election of Directors” and “Directors and Executive Officers” in our Proxy Statement for the Annual Meeting of Shareholders to be held January 27, 2021 (the “Proxy Statement”). Information about our Audit Committee may be found under the caption “Committees of the Board of Directors” in the Proxy Statement. That information is incorporated herein by reference. +We have adopted a code of ethics that applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and other finance organization employees. The code of ethics is publicly available on our website at +www.meridianbioscience.com +. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on that website or in a report on +Form 8-K. +ITEM 11. +EXECUTIVE COMPENSATION +The information in the Proxy Statement set forth under the captions “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference. +ITEM 12. +SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS +The information in the Proxy Statement set forth under the captions “Security Ownership of Certain Beneficial Owners” and “Equity Compensation Plan Information” is incorporated herein by reference. +ITEM 13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Transactions with Related Persons” is incorporated herein by reference. +ITEM 14. +PRINCIPAL ACCOUNTING FEES AND SERVICES +Information concerning principal accountant fees and services appears in the Proxy Statement under the headings “Principal Accounting Firm Fees” and “Committees of the Board of Directors” and is incorporated herein by reference. +- 74 - +Table of Contents +ITEM 15. +EXHIBITS AND FINANCIAL STATEMENT SCHEDULES +(a) +(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES. +All financial statements and schedules required to be filed by Item 8 of this Form and included in this report have been so identified under Item 8. No additional financial statements or schedules are being filed since the requirements of paragraph (c) under Item 15 are not applicable to Meridian. +(b) +(3) EXHIBITS. +Exhibit +Number +Description of Exhibit +3.1 +Amended Articles of Incorporation (Incorporated by reference to Meridian’s Form 10-K filed with the Securities and Exchange Commission on November 26, 2019) +3.2 +Amended and Restated Code of Regulations (Incorporated by reference to Meridian’s Form 10-K filed with the Securities and Exchange Commission on November 26, 2019) +4.1 +Description of Securities (Incorporated by reference to Meridian’s Form 10-K filed with the Securities and Exchange Commission on November 26, 2019) +10.1* +Amendment No. 1 to Supplemental Benefit Agreement Dated September 23, 2014 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on September 25, 2014) +10.2* +Third Amended and Restated Employment Agreement Dated October 3, 2016 between Meridian and John A. Kraeutler (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on October 5, 2016) +10.3* +Amended and Restated Employment Agreement dated effective October 1, 2019 between Meridian and John P. Kenny (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on November 7, 2019) +10.4* +Dividend Reinvestment Plan (Incorporated by reference to Meridian’s Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1999) +10.5* +2012 Stock Incentive Plan, effective January 25, 2012 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2011) +10.6* +Israeli Appendix to the Meridian Bioscience, Inc. 2012 Stock Incentive Plan dated effective July 10, 2020 (Filed herewith) +10.7* +Form of Time-Based Restricted Share Unit Award Agreement (Filed herewith) +10.8* +Form of Nonqualified Stock Option Agreement (Filed herewith) +10.9* +Cash-Based Incentive Compensation Plan for Fiscal 2020 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended December 31, 2019) +10.10* +Form of Meridian Bioscience, Inc. Change in Control Agreement dated August 4, 2016 (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30, 2016) +- 75 - +Table of Contents +10.11** +Share Purchase Agreement dated as of April 29, 2019 by and among GenePOC Inc., Meridian Bioscience Canada Inc., the shareholders of GenePOC Inc., Apres-Demain Holding SA, as Shareholders’ Representative, and Meridian Bioscience, Inc. (Incorporated by reference to Meridian’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2019) +10.12** +Credit Agreement, dated May 24, 2019 between Meridian Bioscience, Inc., as borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and PNC Bank, National Association, as administrative agent (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on May 31, 2019) +10.13 +First Amendment and Consent, dated as of February 19, 2020, by and among Meridian Bioscience, Inc., the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and PNC Bank, National Association (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on February 20, 2020) +10.14** +Promissory Note dated June 3, 2019 between Meridian Bioscience Canada Inc. and GenePOC Inc. (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on June 3, 2019) +10.15 +Agreement and Plan of Merger, dated as of February 19, 2020, by and among Meridian Bioscience, Inc., APM Trust Shelf 14 Ltd. and Exalenz Bioscience Ltd. (Incorporated by reference to Meridian’s Form 8-K filed with the Securities and Exchange Commission on February 20, 2020) +10.16 +Amendment No. 2 to Share Purchase Agreement dated as of September 29, 2020, between Apres-Demain Inc. (formerly known as GenePOC Inc.), Meridian Bioscience Canada, Inc., Apres-Demain SA in its capacity of Shareholders’ Representative, and Meridian (Filed herewith) +21 +List of Subsidiaries of the Registrant (Filed herewith) +23 +Consent of Independent Registered Public Accounting Firm (Filed herewith) +31.1 +Certification of Principal Executive Officer required by Rule 13a-14(a) (Filed herewith) +31.2 +Certification of Principal Financial Officer required by Rule 13a-14(a) (Filed herewith) +32*** +Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (Furnished herewith) +101.INS +Inline XBRL Instance Document +101.SCH +Inline XBRL Taxonomy Extension Schema +101.CAL +Inline XBRL Taxonomy Extension Calculation Linkbase +101.DEF +Inline XBRL Taxonomy Extension Definition Linkbase +101.LAB +Inline XBRL Taxonomy Extension Label Linkbase +101.PRE +Inline XBRL Taxonomy Extension Presentation Linkbase +104 +Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) +- 76 - +Table of Contents +* +Management Compensatory Contracts +** +Schedules to and certain portions of these exhibits have been omitted pursuant to Item 601(b)(2) of Regulation +S-K. +The omitted information is not material and would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby agrees to furnish a copy of any omitted schedule or other portion to the SEC upon request. +*** +Furnished, not filed. +Meridian will provide shareholders with any exhibit upon the payment of a specified reasonable fee, which fee shall be limited to Meridian’s reasonable expenses in furnishing such exhibit. +ITEM 16. +FORM +10-K +SUMMARY +None. +- 77 - +Table of Contents +SIGNATURES +Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. +MERIDIAN BIOSCIENCE, INC. +By: +/s/ Jack Kenny +Date: November 23, 2020 +Jack Kenny +Chief Executive Officer +We, the undersigned directors and officers of the Registrant, hereby severally constitute Jack Kenny and Bryan T. Baldasare, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to the Annual Report on Form +10-K +filed with the Securities and Exchange Commission. +Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. +Signature +Capacity +Date +/s/ Jack Kenny +Chief Executive Officer and Director +November 23, 2020 +Jack Kenny +/s/ Bryan T. Baldasare +Executive Vice President, Chief +November 23, 2020 +Bryan T. Baldasare +Financial Officer and Secretary +(Principal Financial and Accounting Officer) +/s/ David C. Phillips +Chairman of the Board +November 23, 2020 +David C. Phillips +/s/ James M. Anderson +Director +November 23, 2020 +James M. Anderson +/s/ Anthony P. Bihl III +Director +November 23, 2020 +Anthony P. Bihl III +/s/ Dwight E. Ellingwood +Director +November 23, 2020 +Dwight E. Ellingwood +/s/ John C. McIlwraith +Director +November 23, 2020 +John C. McIlwraith +/s/ John M. Rice, Jr. +Director +November 23, 2020 +John M. Rice, Jr. +/s/ Catherine A. Sazdanoff +Director +November 23, 2020 +Catherine A. Sazdanoff +/s/ Felicia Williams +Director +November 23, 2020 +Felicia Williams +- 78 - +Table of Contents +SCHEDULE II +Meridian Bioscience, Inc. +and Subsidiaries +Valuation and Qualifying Accounts +(Dollars in thousands) +Years Ended September 30, 2020, 2019 and 2018 +Description +Balance at +Beginning +of Period +Charged to +Costs and +Expenses +Deductions +Other (a) +Balance at +End of +Period +Year Ended September 30, 2020: +Allowance for doubtful accounts +$ +537 +$ +34 +$ +( 75 +) +$ +17 +$ +513 +Inventory realizability reserves +2,441 +1,775 +( 564 +) +( 23 +) +3,629 +Valuation allowances – deferred taxes +408 +— +( 106 +) +— +302 +Year Ended September 30, 2019: +Allowance for doubtful accounts +$ +310 +$ +347 +$ +( 100 +) +$ +( 20 +) +$ +537 +Inventory realizability reserves +1,971 +930 +( 448 +) +( 12 +) +2,441 +Valuation allowances – deferred taxes +302 +106 +— +— +408 +Year Ended September 30, 2018: +Allowance for doubtful accounts +$ +307 +$ +39 +$ +( 32 +) +$ +( 4 +) +$ +310 +Inventory realizability reserves +2,059 +321 +( 405 +) +( 4 +) +1,971 +Valuation allowances – deferred taxes +342 +— +( 40 +) +— +302 +(a) +Balances reflect the effects of currency translation. +- 79 - \ No newline at end of file diff --git a/raw/filings/0000794172/2020/0001193125-20-300813/filing_metadata.csv b/raw/filings/0000794172/2020/0001193125-20-300813/filing_metadata.csv new file mode 100644 index 0000000000000000000000000000000000000000..566bc68cf7d934507653e718d85abb13bac56293 --- /dev/null +++ b/raw/filings/0000794172/2020/0001193125-20-300813/filing_metadata.csv @@ -0,0 +1,2 @@ +cik,ticker,company_name,form,filing_date,report_date,acceptance_datetime,accession_number,primary_document,primary_doc_description,size,is_xbrl,is_inline_xbrl,document_url,filing_index_url,year,fiscal_year,is_primary_filing +0000794172,VIVO,MERIDIAN BIOSCIENCE INC,10-K,2020-11-23,2020-09-30,2020-11-23T16:33:06.000Z,0001193125-20-300813,d24550d10k.htm,10-K,13563228,1,1,https://www.sec.gov/Archives/edgar/data/794172/000119312520300813/d24550d10k.htm,https://www.sec.gov/Archives/edgar/data/794172/000119312520300813/,2020,2020,1 diff --git a/raw/filings/0000794172/2020/0001193125-20-300813/item1.txt b/raw/filings/0000794172/2020/0001193125-20-300813/item1.txt new file mode 100644 index 0000000000000000000000000000000000000000..48c7ce83e683983e09d7149a59112c8862a51fe7 --- /dev/null +++ b/raw/filings/0000794172/2020/0001193125-20-300813/item1.txt @@ -0,0 +1,21 @@ +ITEM 1. +BUSINESS +Overview +Meridian is a fully-integrated life science company with principal businesses in: (i) the development, manufacture, sale and distribution of diagnostic test kits, primarily for certain gastrointestinal and respiratory infectious diseases, and elevated blood lead levels; and (ii) the manufacture and distribution of bulk antigens, antibodies, PCR/qPCR reagents, nucleotides, and bioresearch reagents used by in vitro diagnostic (“IVD”) manufacturers and researchers in immunological and molecular tests for human, animal, plant and environmental applications. +Our website is +www.meridianbioscience.com +. We make available our Annual Reports on Form +10-K, +Quarterly Reports on Form +10-Q, +Current Reports on Form +8-K, +Proxy Statements and any amendments thereto, free of charge through this website, as soon as reasonably practicable after such material has been electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site containing these filings and other information regarding Meridian at +www.sec.gov +. The information on our website is not and should not be considered part of this Annual Report on Form +10-K. +Reportable Segments +Our reportable segments are Diagnostics and Life Science, both of which are headquartered in Cincinnati, Ohio. We describe these segments in this “Business” section and in other locations in this report: +Type of Segment Information +Location within Annual Report on Form 10-K +Physical locations and activities \ No newline at end of file diff --git a/raw/filings/0000794172/2020/0001193125-20-300813/item13.txt b/raw/filings/0000794172/2020/0001193125-20-300813/item13.txt new file mode 100644 index 0000000000000000000000000000000000000000..c67a44ce3b92d890209de84771c974711e457e7e --- /dev/null +++ b/raw/filings/0000794172/2020/0001193125-20-300813/item13.txt @@ -0,0 +1,3 @@ +ITEM 13. +CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE +The information set forth in the Proxy Statement under the captions “Corporate Governance” and “Transactions with Related Persons” is incorporated herein by reference. \ No newline at end of file diff --git a/raw/filings/0000794172/2020/0001193125-20-300813/item9a.txt b/raw/filings/0000794172/2020/0001193125-20-300813/item9a.txt new file mode 100644 index 0000000000000000000000000000000000000000..c99dc3878a2c27983362b58e412a11a8c4607296 --- /dev/null +++ b/raw/filings/0000794172/2020/0001193125-20-300813/item9a.txt @@ -0,0 +1,10 @@ +ITEM 9A. +CONTROLS AND PROCEDURES +As of September 30, 2020, an evaluation, excluding the internal controls of wholly-owned subsidiaries Meridian Bioscience Israel Holding Ltd. and Exalenz Bioscience, Inc. (collectively “Exalenz”), which were acquired during fiscal 2020, was completed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule +13a-15(b) +and +15d-15(b) +promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of September 30, 2020. There have been no changes in our internal control over financial reporting identified in connection with the evaluation of internal control that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to affect, our internal control over financial reporting, or in other factors that could significantly affect internal control subsequent to September 30, 2020. +Our internal control report is included in this Annual Report on Form +10-K +after Item 8, under the caption “Management’s Report on Internal Control over Financial Reporting.” \ No newline at end of file diff --git a/raw/filings/0000794172/2020/0001193125-20-300813/rp_note.txt b/raw/filings/0000794172/2020/0001193125-20-300813/rp_note.txt new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/raw/filings/0000794172/2020/0001193125-20-300813/rpt_disclosure.txt b/raw/filings/0000794172/2020/0001193125-20-300813/rpt_disclosure.txt new file mode 100644 index 0000000000000000000000000000000000000000..b13014e82fe3f41cefc52614017c82ea0bf4c36a --- /dev/null +++ b/raw/filings/0000794172/2020/0001193125-20-300813/rpt_disclosure.txt @@ -0,0 +1,10 @@ +TRANSACTIONS WITH RELATED PERSONS +Nasdaq rules require the Company to conduct an appropriate review of related party transactions required to be disclosed by the Company pursuant to SEC +Regulation S-K Item 404 for potential conflict of interest situations on an ongoing basis and that all such transactions must be approved by the Audit Committee or another Committee comprised of independent +directors. As a result, the Audit Committee annually reviews all such related party transactions and approves each related party transaction if it determines that it is in the best interests of the Company. Additionally, the Audit Committee’s +Charter provides it the authority to review, approve and monitor transactions involving the Company and “related persons” (directors and executive officers or their immediate family members, or shareholders owning five percent or greater +of the Company’s outstanding stock). This also covers any related person transaction that meets the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (generally, transactions involving amounts exceeding +$120,000 in which a related person has a direct or indirect material interest). In considering the transaction, the Audit Committee may consider all relevant factors, including, as applicable: (i) the Company’s business rationale for +entering into the transaction; (ii) the alternatives to entering into a related person transaction; (iii) whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to +employees generally; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction to +the Company. This policy is included in the Company’s Employee Handbook. The approvals of such related person transactions are evidenced by internal Company resolutions, minutes or memoranda. \ No newline at end of file