ANNUAL
2019 REPORT
2 0 1 9 F I N A N C I A L
H I G H L I G H T S
0N AN ADJUSTED BASI S
$2.27 BILLION IN TOTAL REVENUE
REPRESENTING GROWTH OF 2.3%
ON A CONSTANT CURRENCY BASIS
RECORD EPS
OF $2.25
$223 MILLION
OF OPERATING CASH FLOW
RETURNED VALUE
TO SHAREHOLDERS
$320 MILLION OF SHARE REPURCHASES
25% DIVIDEND INCREASE
2 0 1 9 F I N A N C I A L
H I G H L I G H T S
0N AN ADJUSTED BASI S
L E T T E R T O O U R
S H A R E H O L D E R S
$2.27 BILLION IN TOTAL REVENUE
REPRESENTING GROWTH OF 2.3%
ON A CONSTANT CURRENCY BASIS
2019 was another successful year for the Company with
Our operating model has consistently generated
further progress against our Global Growth Agenda.
healthy cash flows, with 2019 operating cash flow
This agenda is our road map for growth and is focused
exceeding $220 million. Using our strong balance
on developing an innovative and faster Product
sheet and cash generation, we continued to invest
Creation Engine, implementing a modern, consumer-
to drive organic growth throughout the year which
driven Digital-Direct Offense, and accelerating our
directly benefited our accelerating direct-to-consumer
growth in International markets. Focused efforts
business and momentum in our largest brands.
and investments behind these pillars helped build
Capital investments made in 2019 for new stores, the
momentum and allowed us to deliver top-line growth
acquisition of a key Saucony distributor and our joint
as we worked to fulfill our vision to “Build a family of
venture with Xtep totaled approximately $35 million.
the most admired performance and lifestyle brands
These investments better position us to meet our
on earth.” Despite challenging retail and wholesale
future growth goals.
markets, international trade tensions, foreign currency
fluctuations, and other macro-level issues, the Company
achieved several key milestones in 2019 that I am proud
to share with you.
2019 FINANCIAL REVIEW
MOMENTUM BUILDING IN KEY BRANDS
We saw solid revenue growth in 2019 from several
of our largest brands, attributable to early adoption
of our Brand Growth Model and the Company’s
focused investments behind our Global Growth
Agenda. The quarterly momentum grew steadily
throughout the year.
RECORD ADJUSTED EARNINGS AND STRONG CASH FLOW
We are pleased with the financial performance of
MERRELL® grew at a mid-single digit rate during
2019 with increases across all product categories.
the Company in 2019, with record adjusted earnings
The brand’s direct-to-consumer business had
per share of $2.25, an increase of 4% compared
another exceptional year with eCommerce growing
to the prior year. Revenue of $2.27 billion grew at a
25% and stores growing 10%. The brand’s momentum
constant currency rate of 2.3% and the Company
accelerated in the fourth quarter as our largest brand
delivered an adjusted operating margin of 11.5%.
delivered mid-teens growth.
2019 ANNUAL REPORT
L E T T E R T O O U R S H A R E H O L D E R S
SPERRY®
improved to mid-single digit growth
approximately $320 million in stock and increased
during 2019, with continued strength in the boot
our dividend by 25% to $34 million. We also made
and casual categories. The brand saw impressive
significant capital investments to fuel key initiatives
growth in its direct-to-consumer business with new
that better position the Company for future growth.
retail store locations leading to growth of nearly
25% and growth in eCommerce of 20%.
The Company ended 2019 in strong financial position,
SAUCONY® experienced a revenue decline in the mid-
single digits for the entire year, with a significant
shift towards recovery in the back half, driven by the
core technical footwear category. Saucony achieved
nearly 10% growth in the brand’s technical category in
the fourth quarter and received a number of industry
awards. Saucony’s eCommerce business continued
to flourish, growing over 37% in 2019. We are very
encouraged by the momentum in the Saucony business
and the incredibly strong pipeline of new performance
and lifestyle products planned for 2020.
with a bank-defined leverage ratio of 2.05 times and
total liquidity of approximately $1.3 billion. As a result,
we have significant financial flexibility to invest in organic
growth, keep debt balances in line, return capital to our
shareholders, and fund future acquisitions.
GLOBAL GROWTH AGENDA –
A YEAR IN REVIEW
CAT® FOOTWEAR grew at a low-double digit pace
for the year. The brand’s CODE collection was
We maintained our level of operating investment
in 2019 to drive organic growth behind the Global
Growth Agenda, the first element of which is
its largest product introduction ever. Launched
focused on building an
innovative and faster
globally in the third quarter, this collection has
Product Creation Engine. In 2019, we recruited a
been very well received by consumers around the
Chief Merchant Officer to supplement the efforts of
world. The eCommerce channel grew at a robust
our brands, accelerate innovation and elevate our
rate of over 40% for 2019.
product creation process. We are excited by the
STRONG RETURN OF CAPITAL TO SHAREHOLDERS
During 2019, we generated over $220 million of
cash from operations, which was efficiently used
to create shareholder value. We repurchased
2020 pipeline of on-trend and innovative product
offerings across the brand portfolio and the powerful
marketing stories that have been developed to
support them.
2019 ANNUAL REPORT L E T T E R T O O U R S H A R E H O L D E R S
We also made significant investments during 2019
to advance our Digital-Direct Offense, the second
element of our Global Growth Agenda. For us, this
means leveraging our commercial platforms and
optimizing demand creation investments across
all channels of distribution, especially owned
eCommerce, which grew over 20%, delivered
260 basis points of operating margin expansion,
and increased customer retention by over 30%.
Our owned eCommerce channel has averaged
approximately 20% growth over the past three years
and is expected to continue as our highest growth
channel over the near term. Digital growth within
our U.S. wholesale channel was also strong.
IN CLOSING
Our 2019 success reflects the hard work and
effort contributed by our global team over the
last several years to transform the business to win
in the fast-changing global retail environment.
Growth continues to be our primary goal and the
leadership team remains incredibly focused on
executing the initiatives and activities that will
allow us to accelerate that growth.
I want to thank our team around the world for all
of their hard work and efforts over this past year to
The third pillar of our Global Growth Agenda is
help reshape the Company and better position us
focused on International Expansion. We have a long
to drive growth in the future. On behalf of everyone
track record of driving brand success and growth
at Wolverine Worldwide, I would also like to thank
on a global basis through a variety of business
you, our shareholders, for your continued support
models. In 2019, we executed a joint venture with
of our Company.
Xtep to position the Merrell and Saucony brands for
accelerated growth. We also acquired a key Saucony
distributor and are using that talent to build a global
design hub for the brand’s successful Originals
lifestyle business. We expect our
international
business to be a key source of growth over the
next several years as we continue to gain more
direct engagement with consumers in key strategic
markets.
The continued success associated with the execution
of our Global Growth Agenda is very encouraging.
The team has achieved success and momentum
over the last two years that will be leveraged to
accelerate future growth.
BLAKE W. KRUEGER
Chairman of the Board,
Chief Executive Officer, and President
2019 ANNUAL REPORT 2019 ANNUAL REPORT 2 0 1 9
K E Y E V E N T S
CONTINUED SIGNIFICANT INVESTMENT IN
DIRECT-TO-CONSUMER
OWNED ECOMMERCE IS A STRONG
GROWTH DRIVER, GROWING
OPENING 21 MERRELL & SPERRY PREMIUM
OUTLET LOCATIONS, STORES GREW
22% IN 2019
12% IN 2019
XTEP JOINT VENTURE
ENTERED INTO A JV PARTNERSHIP WITH LEADING CHINESE
SPORTSWEAR AND RUNNING FOOTWEAR COMPANY, XTEP, TO
GROW MERRELL & SAUCONY
IN MAINLAND CHINA, HONG KONG, AND MACAU
ACQUIRED A KEY
SAUCONY DISTRIBUTOR
TO FURTHER STRENGTHEN THE COMPANY’S
OWNED MARKET PRESENCE IN EUROPE,
MAXIMIZING GROWTH
OPPORTUNITIES FOR THE BRAND
RETURNED CAPITAL
TO SHAREHOLDERS
PURCHASED
INCREASED QUARTERLY DIVIDEND BY
$320 MILLION
$34 MILLION & 25%
OF WWW STOCK IN 2019
FOLLOWING A 33% INCREASE IN 2018
2019 ANNUAL REPORT R E C O N C I L I AT I O N T O G A A P M E A S U R E S
RECONCILIATION OF REPORTED REVENUE TO ADJUSTED REVENUE ON A CONSTANT CURRENCY BASIS* (Unaudited) (in millions)
GAAP Basis
2019
Foreign
Exchange
Impact
Constant
Currency
Basis 2019
GAAP Basis
2018
Constant
Currency
Growth
Reported
Growth
Revenue
$2,273.7
$16.7
$2,290.4
$2,239.2
2.3%
1.5%
RECONCILIATION OF REPORTED OPERATING MARGIN TO ADJUSTED OPERATING MARGIN* (Unaudited) (in millions)
GAAP Basis
Adjustments (1)
As Adjusted
Operating Profit – Fiscal 2019
Operating Margin
$171.0
7.5%
$91.6
-
$262.6
11.5%
(1) 2019 adjustments reflect $83.5 million of environmental and other related costs net of a settelment and $8.1 million of other costs including business
development costs and reorganization costs.
RECONCILIATION OF REPORTED DILUTED EPS TO ADJUSTED DILUTED EPS* (Unaudited)
GAAP Basis
Adjustments (1)
As Adjusted
Fiscal 2019
$1.44
$0.81
$2.25
(1) 2019 adjustments reflect environmental and other related costs net of a settlement, business development costs and reorganization costs.
2019 ANNUAL REPORT
R E C O N C I L I AT I O N T O G A A P M E A S U R E S , C O N T.
*To supplement the consolidated condensed financial statements presented in accordance
with Generally Accepted Accounting Principles (“GAAP”), the Company describes what
certain financial measures would have been if environmental and other related costs and
environmental cost recoveries, business development related costs, reorganization costs,
the impact of tax reform updates and a foreign currency remeasurement gain that is not
expected to reoccur were excluded.The Company believes these non-GAAP measures
provide useful information to both management and investors to increase comparability to
the prior period by adjusting for certain items that may not be indicative of core operating
measures and to better identify trends in our business. The adjusted financial results are
used by management to, and allow investors to, evaluate the operating performance of the
Company on a comparable basis.
The constant currency presentation, which is a non-GAAP measure, excludes the impact of
fluctuations in foreign currency exchange rates. The Company believes providing constant
currency information provides valuable supplemental information regarding results of
operations, consistent with howthe Company evaluates performance. The Company
calculates constant currency by converting the current-period local currency financial
results using the prior period exchange rates and comparing these adjusted amounts to
our current period reported results.
Management does not, nor should investors, consider such non-GAAP financial measures
in isolation from, or as a substitution for, financial information prepared in accordance with
GAAP.A reconciliation of all non-GAAP measures included in this press release, to the most
directly comparable GAAP measures are found in the financial tables on the previous page.
2019 ANNUAL REPORT E X E C U T I V E M A N A G E M E N T
B O A R D O F D I R E C T O R S
S H A R E H O L D E R I N F O R M AT I O N
BLAKE W. KRUEGER
Chairman of the Board,
Chief Executive Officer, and President
MICHAEL D. STORNANT
Senior Vice President,
Chief Financial Officer & Treasurer
KYLE L. HANSON
Senior Vice President
General Counsel & Secretary
MIKE JEPPESEN
President
Global Operations Group
AMY M. KLIMEK
Senior Vice President
Global Human Resources
ANGELO NG
Chief Merchant Officer
TODD W. SPALETTO
President
Michigan Group
JAMES D. ZWIERS
Executive Vice President
BLAKE W. KRUEGER
Chairman of the Board,
Chief Executive Officer, and
President of Wolverine World Wide, Inc.
JEFFREY M. BOROMISA
Retired Executive Vice President of
Kellogg International; President, Latin America and
Senior Vice President of Kellogg Company
GINA R. BOSWELL
Retired President, Customer Development,
of Unilever USA
ROXANE DIVOL
Former Group Chief Operating Officer
of Webhelp, Inc.
WILLIAM K. GERBER
Managing Director of Cabrillo Point Capital LLC;
Retired Executive Vice President and Chief
Financial Officer of Kelly Services, Inc.
DAVID T. KOLLAT
Lead Director of the Board of
Wolverine World Wide, Inc.; President
and Chairman of 22, Inc.
BRENDA J. LAUDERBACK
Retired President of the Wholesale and
Retail Group of Nine West Group, Inc.
NICHOLAS T. LONG
Managing Partner of Bridger Growth Partners LLC;
Retired Chief Executive Officer of MillerCoors LLC
DAVID W. MCCREIGHT
Retired President of URBN and
Retired CEO of Anthropologie Group
MICHAEL A. VOLKEMA
Chairman of Herman Miller, Inc.
2019 ANNUAL REPORT
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2019
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
State or other jurisdiction of
incorporation or organization
9341 Courtland Drive N.E.
Rockford, Michigan
(Address of principal executive offices)
38-1185150
(I.R.S. Employer
Identification No.)
49351
(Zip Code)
Registrant’s telephone number, including area code (616) 866-5500
Securities registered pursuant to Section 12(b) of the Act:
Trading symbol
Title of each class
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
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
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
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 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
Non-accelerated filer
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
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.
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.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Item 4.
Supplemental Item. Executive Officers of the Registrant
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
5
10
21
21
21
21
21
22
23
24
34
35
76
76
76
76
76
77
77
77
77
80
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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
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
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.
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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
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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.
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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
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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
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.
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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
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
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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
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.
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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.
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
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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
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
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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
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
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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.
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
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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.
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
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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
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
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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
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.
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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
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
Kyle Hanson
Michael Jeppesen
Amy M. Klimek
Blake W. Krueger
Todd Spaletto
Michael D. Stornant
James D. Zwiers
Age
54
60
46
66
48
53
52
Positions held with the Company
Senior Vice President, General Counsel and Secretary
President, Global Operations Group
Senior Vice President, Global Human Resources
Chairman of the Board, Chief Executive Officer and President
President, Wolverine Michigan Group
Senior Vice President, Chief Financial Officer and Treasurer
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
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
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
Period 10 (September 29, 2019 to November 2, 2019)
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
Common Stock Repurchase Program (1)
Employee Transactions (2)
184,003
7,023
$
$
26.90
27.64
184,003
$
508,440,465
Period 11 (November 3, 2019 to November 30, 2019)
Common Stock Repurchase Program (1)
Employee Transactions (2)
Period 12 (December 1, 2019 to December 28, 2019)
Common Stock Repurchase Program (1)
Employee Transactions (2)
Total for the fourth Quarter Ended December 28, 2019
Common Stock Repurchase Program (1)
Employee Transactions (2)
— $
— $
— $
578
184,003
7,601
$
$
$
—
—
—
33.03
26.90
28.05
— $
508,440,465
— $
508,440,465
184,003
$
508,440,465
(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)
(In millions, except per share data)
Summary of Operations
Revenue
Net earnings attributable to Wolverine World
Wide, Inc.
Net earnings per share of common stock:
Basic net earnings (2)
Diluted net earnings (2)
Cash dividends declared
Financial Position at Year-End
Total assets
Debt
2019
2018
Fiscal Year
2017
2016
2015
$
2,273.7
$
2,239.2
$
2,350.0
$
2,494.6
$
2,691.6
128.5
200.1
0.3
$
$
$
$
1.48
1.44
0.40
2,480.0
798.4
$
$
2.07
2.05
0.32
2,183.1
570.5
— $
—
0.24
$
2,399.0
782.6
2,431.7
820.7
87.7
0.90
0.89
0.24
122.8
1.22
1.20
0.24
2,434.4
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
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
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)
Revenue
Cost of goods sold
Restructuring costs
Gross profit
Selling, general and administrative expenses
Restructuring and other related costs
Impairment of intangible assets
Environmental and other related costs
Operating profit
Interest expense, net
Debt extinguishment and other costs
Other expense (income), net
Earnings (loss) before income taxes
Income tax expense (benefit)
Net earnings (loss)
Less: net earnings (loss) attributable to
noncontrolling interests
Net earnings attributable to Wolverine World
Wide, Inc.
Diluted earnings per share
*Percentage change not meaningful
REVENUE
$
$
2019
2,273.7
1,349.9
—
923.8
669.3
—
—
83.5
171.0
30.0
—
(4.9)
145.9
17.0
128.9
$
2018
2,239.2
1,317.9
—
921.3
654.1
—
—
15.3
251.9
24.5
0.6
(0.6)
227.4
27.1
200.3
2017
2,350.0
1,426.6
9.0
914.4
706.0
72.9
68.6
35.3
31.6
32.1
—
10.1
(10.6)
(9.9)
(0.7)
2019
1.5 %
2.4
—
0.3
2.3
—
—
445.8
(32.1)
22.4
(100.0)
716.7
(35.8)
(37.3)
(35.6)
0.4
0.2
(1.0)
100.0
(120.0)
$
$
128.5
1.44
$
$
200.1
2.05
$
$
0.3
—
(35.8)%
(29.8)%
— %
2018
(4.7)%
(7.6)
(100.0)
0.8
(7.4)
(100.0)
(100.0)
(56.7)
697.2
(23.7)
—
(105.9)
(373.7)
*
*
*
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
OPERATING EXPENSES
Operating expenses increased $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
The reportable operating segment results for fiscal years 2019, 2018 and 2017 are as follows:
(In millions)
REVENUE
Wolverine Michigan Group
Wolverine Boston Group
Other
Total
OPERATING PROFIT (LOSS)
Wolverine Michigan Group
Wolverine Boston Group
Other
Corporate
Total
Fiscal Year
2019
2018
Change
Percent
Change
Fiscal Year
2018
2017
Change
Percent
Change
$ 1,299.7
$ 1,272.2
$
27.5
2.2 % $ 1,272.2
$ 1,267.8
910.9
63.1
$ 2,273.7
895.5
71.5
$ 2,239.2
$
15.4
(8.4)
34.5
1.7 %
(11.7)%
895.5
71.5
1.5 % $ 2,239.2
988.8
93.4
$ 2,350.0
$
4.4
(93.3)
(21.9)
$ (110.8)
0.3 %
(9.4)%
(23.4)%
(4.7)%
$
$
244.8
153.8
2.9
(230.5)
171.0
$
$
257.6
157.5
3.1
(166.3)
251.9
$ (12.8)
(3.7)
(0.2)
(64.2)
$ (80.9)
(5.0)% $
(2.3)%
(6.5)%
38.6 %
(32.1)% $
257.6
157.5
3.1
(166.3)
251.9
$
$
243.7
153.6
5.2
(370.9)
31.6
$
13.9
3.9
(2.1)
204.6
$ 220.3
5.7 %
2.5 %
(40.4)%
(55.2)%
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 increased $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 decreased $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 increased $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 decreased $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
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 decreased $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 increased $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
(In millions)
Cash and cash equivalents
Debt (1)
Available Revolving Credit Facility (2)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Additions to property, plant and equipment
Depreciation and amortization
$
2019
Fiscal Year
2018
2017
$
180.6
798.4
434.3
222.6
(61.5)
(124.6)
34.4
32.7
$
143.1
570.5
672.5
97.5
(22.2)
(404.5)
21.7
31.5
481.0
782.6
597.5
202.7
(1.0)
(98.0)
32.4
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
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
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
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
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
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)
Long-term debt obligations (1)
Operating lease obligations
Purchase obligations (2)
Supplemental Executive Retirement Plan
Deferred compensation
Dividends declared
Municipal water improvements (3)
TCJA transition obligation
Minimum royalties
Minimum advertising
Total (4)
$
$
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
929.1
235.3
367.8
42.0
1.8
9.0
69.5
27.9
5.0
17.0
1,704.4
$
$
400.7
34.1
367.8
3.7
0.4
9.0
21.5
—
1.5
3.2
841.9
$
$
66.6
57.9
—
7.9
0.8
—
39.3
7.1
3.5
6.7
189.8
$
$
191.0
38.2
—
8.3
0.4
—
8.7
20.8
—
7.1
274.5
$
$
270.8
105.1
—
22.1
0.2
—
—
—
—
—
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
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
36
37
38
40
42
44
47
47
48
49
50
51
51
53
53
54
55
58
61
64
65
65
68
70
71
72
73
Item 8.
Financial Statements and Supplementary Data
Table of Contents
Consolidated Financial Statements
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Note 1. Summary of Significant Accounting Policies
Note 2. New Accounting Standards
Note 3. Earnings Per Share
Note 4. Goodwill and Other Intangibles
Note 5. Accounts Receivable
Note 6. Revenue From Contracts With Customers
Note 7. Inventories
Note 8. Debt
Note 9. Property, Plant and Equipment
Note 10. Leases
Note 11. Derivative Financial Instruments
Note 12. Stock-Based Compensation
Note 13. Retirement Plans
Note 14. Income Taxes
Note 15. Accumulated Other Comprehensive Income (Loss)
Note 16. Fair Value Measurements
Note 17. Litigation and Contingencies
Note 18. Business Segments
Note 19. Business Acquisition
Note 20. Divestitures
Note 21. Quarterly Results of Operations (Unaudited)
Reports of Independent Registered Public Accounting Firm
35
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
2019
Fiscal Year
2018
$
2,273.7
$
2,239.2
$
1,349.9
1,317.9
—
923.8
669.3
—
—
83.5
171.0
30.0
—
(4.9)
25.1
145.9
17.0
128.9
0.4
128.5
1.48
1.44
$
$
$
—
921.3
654.1
—
—
15.3
251.9
24.5
0.6
(0.6)
24.5
227.4
27.1
200.3
0.2
200.1
2.07
2.05
$
$
$
2017
2,350.0
1,426.6
9.0
914.4
706.0
72.9
68.6
35.3
31.6
32.1
—
10.1
42.2
(10.6)
(9.9)
(0.7)
(1.0)
0.3
—
—
(In millions, except per share data)
Revenue
Cost of goods sold
Restructuring costs
Gross profit
Selling, general and administrative expenses
Restructuring and other related costs
Impairment of intangible assets
Environmental and other related costs
Operating profit
Other expenses:
Interest expense, net
Debt extinguishment and other costs
Other expense (income), net
Total other expenses
Earnings (loss) before income taxes
Income tax expense (benefit)
Net earnings (loss)
Less: net earnings (loss) attributable to noncontrolling interests
Net earnings attributable to Wolverine World Wide, Inc.
Net earnings per share (see Note 3):
Basic
Diluted
$
$
$
See accompanying notes to consolidated financial statements.
36
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In millions)
Net earnings (loss)
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustments
Unrealized gain (loss) on derivative instruments:
Unrealized gain (loss) arising during the period, net of taxes of
$0.2, $1.3 and $(7.0)
Reclassification adjustments included in net earnings (loss), net of
taxes of $(2.2), $1.3 and $(0.3)
Pension adjustments:
Net actuarial loss arising during the period, net of taxes of $(3.9),
$(2.6) and $(3.3)
Amortization of prior actuarial losses, net of taxes of $0.5, $0.7
and $3.5
Curtailment gain arising during the period, net of taxes $0.8 in
2017
Settlement loss, net of taxes of $1.5 in 2018
Other comprehensive income (loss)
Less: other comprehensive income (loss) attributable to
noncontrolling interests
Other comprehensive income (loss) attributable to Wolverine World
Wide, Inc.
Comprehensive income
Less: comprehensive income (loss) attributable to noncontrolling
interests
2019
Fiscal Year
2018
2017
$
128.9
$
200.3
$
(0.7)
5.4
(20.5)
21.1
0.9
(7.6)
(14.6)
2.1
—
—
(13.8)
—
(13.8)
115.1
0.4
14.4
2.5
(9.9)
2.6
—
5.7
(5.2)
(0.2)
(5.0)
195.1
—
(16.0)
(0.7)
(6.0)
6.3
1.5
—
6.2
0.3
5.9
5.5
(0.7)
6.2
Comprehensive income attributable to Wolverine World Wide, Inc.
$
114.7
$
195.1
$
See accompanying notes to consolidated financial statements.
37
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowances of $26.7 and $26.6
Inventories:
Finished products, net
Raw materials and work-in-process, net
Total inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment:
Gross cost
Accumulated depreciation
Property, plant and equipment, net
Lease right-of-use assets
Other assets:
Goodwill
Indefinite-lived intangibles
Amortizable intangibles, net
Deferred income taxes
Other
Total other assets
Total assets
See accompanying notes to consolidated financial statements.
December 28,
2019
December 29,
2018
$
$
180.6
331.2
342.0
6.2
348.2
107.1
967.1
325.0
(184.0)
141.0
160.8
438.9
604.5
77.8
2.9
87.0
1,211.1
2,480.0
$
$
143.1
361.2
301.4
16.2
317.6
45.8
867.7
381.8
(250.9)
130.9
—
424.4
604.5
71.9
3.1
80.6
1,184.5
2,183.1
38
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets – continued
(In millions, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued salaries and wages
Other accrued liabilities
Lease liabilities
Current maturities of long-term debt
Borrowings under revolving credit agreements
Total current liabilities
Long-term debt, less current maturities
Accrued pension liabilities
Deferred income taxes
Lease liabilities, noncurrent
Other liabilities
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
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Cost of shares in treasury; 27,181,512 and 15,905,681 shares
Total Wolverine World Wide, Inc. stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
December 28,
2019
December 29,
2018
$
$
$
202.1
20.8
157.9
34.1
12.5
360.0
787.4
425.9
109.7
99.0
147.2
132.4
202.3
31.9
106.4
—
7.5
125.0
473.1
438.0
92.0
107.9
—
80.5
108.3
233.4
1,263.3
(102.1)
(736.2)
766.7
11.7
778.4
2,480.0
$
107.6
201.4
1,169.7
(88.3)
(404.4)
986.0
5.6
991.6
2,183.1
39
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(In millions)
OPERATING ACTIVITIES
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Depreciation and amortization
Deferred income taxes
Stock-based compensation expense
Pension contribution
Pension and SERP expense
Debt extinguishment costs
Restructuring and other related costs
Cash payments related to restructuring costs
Impairment of intangible assets
Environmental and other related costs, net of cash payments
Loss/(gain) on sale of a business and other assets
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other operating assets
Accounts payable
Income taxes
Other operating liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES
Business acquisition, net of cash acquired
Additions to property, plant and equipment
Proceeds from sale of a business and other assets
Investment in joint ventures
Other
Net cash used in investing activities
FINANCING ACTIVITIES
Net borrowings (payments) under revolving credit agreements
Borrowings of long-term debt
Payments on long-term debt
Payments of debt issuance and debt extinguishment costs
Cash dividends paid
Purchase of common stock for treasury
Employee taxes paid under stock-based compensation plans
Proceeds from the exercise of stock options
Contributions from noncontrolling interests
Net cash used in financing activities
Effect of foreign exchange rate changes
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
See accompanying notes to consolidated financial statements.
40
2019
Fiscal Year
2018
2017
$
128.9
$
200.3
$
(0.7)
32.7
(9.0)
24.5
—
5.6
—
—
(0.3)
—
48.8
—
(11.3)
30.7
(23.8)
(5.4)
—
3.6
(2.4)
222.6
(15.1)
(34.4)
—
(8.5)
(3.5)
(61.5)
235.0
—
(7.5)
(0.3)
(33.6)
(319.2)
(16.9)
12.2
5.7
(124.6)
1.0
37.5
143.1
180.6
$
31.5
22.1
31.2
(60.7)
11.8
0.6
—
(5.1)
—
(6.1)
0.3
9.5
(95.0)
(44.5)
(17.8)
40.6
(1.9)
(19.3)
97.5
—
(21.7)
2.2
—
(2.7)
(22.2)
124.5
200.0
(538.2)
(2.7)
(28.6)
(174.7)
(8.8)
24.0
—
(404.5)
(8.7)
(337.9)
481.0
143.1
$
$
37.2
(75.8)
25.4
(11.3)
14.9
—
81.9
(64.8)
68.6
32.3
(7.0)
(11.3)
(2.7)
45.4
0.3
11.2
46.1
13.0
202.7
—
(32.4)
38.6
(2.1)
(5.1)
(1.0)
(2.6)
—
(37.5)
(0.1)
(23.0)
(51.5)
(5.5)
21.4
0.8
(98.0)
7.5
111.2
369.8
481.0
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow – continued
(In millions)
OTHER CASH FLOW INFORMATION
Interest paid
Net income taxes paid
NON-CASH INVESTING AND FINANCING ACTIVITY
Additions to property, plant and equipment not yet paid
Business acquisition not yet paid
See accompanying notes to consolidated financial statements.
2019
Fiscal Year
2018
2017
$
$
32.4
23.2
$
29.0
17.4
0.8
5.5
1.3
—
31.5
23.6
0.8
—
41
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In millions, except share and per share data)
Wolverine World Wide, Inc. Stockholders' Equity
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) $
Net earnings (loss)
Other comprehensive income
Shares forfeited, net of shares issued
under stock incentive plans
(488,655 shares)
Shares issued for stock options
exercised, net (1,247,064 shares)
Stock-based compensation expense
Cash dividends declared ($0.24 per
share)
Issuance of treasury shares (44,480
shares)
Purchase of common stock for treasury
(1,639,732 shares)
Purchases of shares under stock-based
compensation plans (227,464
shares)
Capital contribution from noncontrolling
interests
Incremental investment in joint venture
0.3
5.9
(0.5)
0.3
1.3
20.1
25.4
0.2
(23.2)
0.9
(42.3)
(5.3)
Balance at December 30, 2017
$ 106.4
$ 149.2
$ 992.2
$
(75.2) $ (223.0) $
200.1
(5.0)
Net earnings
Other comprehensive loss
Shares forfeited, net of shares issued
under stock incentive plans
(154,084 shares)
Shares issued for stock options
exercised, net (1,357,841 shares)
Stock-based compensation expense
Cash dividends declared ($0.32 per
share)
Issuance of treasury shares (7,761
shares)
Purchase of common stock for treasury
(5,349,262 shares)
Purchases of shares under stock-based
compensation plans (219,039
shares)
Change in accounting principle
(0.2)
(1.7)
1.4
22.6
31.2
0.1
(30.7)
8.1
Balance at December 29, 2018
$ 107.6
$ 201.4
$ 1,169.7
$
See accompanying notes to consolidated financial statements.
42
0.2
(174.7)
(6.9)
(8.1)
(88.3) $ (404.4) $
7.6
(1.0)
0.3
$ 974.1
(0.7)
6.2
(0.2)
21.4
25.4
(23.2)
1.1
(42.3)
(5.3)
0.8
(2.1)
5.6
0.2
(0.2)
0.8
(2.1)
$ 955.2
200.3
(5.2)
(1.9)
24.0
31.2
(30.7)
0.3
(174.7)
(6.9)
—
5.6
$ 991.6
WOLVERINE WORLD WIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity – continued
(In millions, except share and per share data)
Wolverine World Wide, Inc. Stockholders' Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Non-
controlling
Interest
Balance at December 29, 2018
$ 107.6
$ 201.4
$ 1,169.7
$
(88.3) $ (404.4) $
Net earnings
Other comprehensive income (loss)
Shares issued, net of shares forfeited
under stock incentive plans (38,655
shares)
Shares issued for stock options
exercised, net (681,389 shares)
Stock-based compensation expense
Cash dividends declared ($0.40 per
share)
Issuance of treasury shares (7,460
shares)
Purchase of common stock for treasury
(10,914,965 shares)
Purchases of shares under stock-based
compensation plans (368,326
shares)
Capital contribution from noncontrolling
interests
128.5
(13.8)
0.1
0.6
(4.2)
11.6
24.5
0.1
(34.9)
0.2
(319.2)
5.6
0.4
—
Total
$ 991.6
128.9
(13.8)
(4.1)
12.2
24.5
(34.9)
0.3
(319.2)
(12.8)
(12.8)
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
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
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
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
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
ASU 2016-02, Leases (as
amended by ASUs
2018-01, 2018-10,
2018-11, 2018-20 and
2019-01)
Description
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.
Effect on the Financial Statements or Other
Significant Matters
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.
Planned
Period of
Adoption
Q1 2020
Effect on the Financial
Statements or Other Significant
Matters
The Company is evaluating the
impacts of the new standard on
its existing financial instruments,
including trade receivables.
Standard
ASU 2016-13,
Measurement of Credit
Losses on Financial
Instruments (as amended
by ASU 2018-19)
Description
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.
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
The following table sets forth the computation of basic and diluted earnings per share:
(In millions, except per share data)
Numerator:
Net earnings attributable to Wolverine World Wide, Inc.
Less: net earnings attributed to participating share-based awards
Net earnings used to calculate basic earnings per share
Adjustment for earnings (loss) reallocated to participating share-based
awards
Net earnings used to calculate diluted earnings per share
Denominator:
Weighted average shares outstanding
Adjustment for unvested restricted common stock
Shares used to calculate basic earnings per share
Effect of dilutive share-based awards
Shares used to calculate diluted earnings per share
Net earnings per share:
Basic
Diluted
2019
Fiscal Year
2018
2017
$
$
$
$
$
128.5
(2.6)
125.9
$
200.1
(7.5)
192.6
0.1
1.8
126.0
$
194.4
$
85.7
(0.6)
85.1
2.1
87.2
94.8
(1.8)
93.0
2.0
95.0
1.48
1.44
$
$
2.07
2.05
$
$
0.3
—
0.3
(0.2)
0.1
96.4
(2.7)
93.7
1.7
95.4
—
—
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:
(In millions)
Goodwill balance at beginning of the year
Acquisition of a business (see Note 19)
Foreign currency translation effects
Goodwill balance at end of the year
Fiscal Year
2019
2018
$
$
424.4
12.0
2.5
438.9
$
$
429.8
—
(5.4)
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
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:
(In millions)
Customer relationships
Other
Total
(In millions)
Customer relationships
Other
Total
December 28, 2019
Gross carrying
value
Accumulated
amortization
Net
$
$
$
$
113.3
17.3
130.6
Gross carrying
value
100.5
14.6
115.1
$
$
$
$
38.8
14.0
52.8
$
$
December 29, 2018
Accumulated
amortization
Net
31.7
11.5
43.2
$
$
Average remaining
life (years)
13
3
Average remaining
life (years)
14
3
74.5
3.3
77.8
68.8
3.1
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)
Amortization expense
2020
2021
2022
2023
2024
$
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.
(In millions)
Accounts receivable sold
Fees charged
2019
Fiscal Year
2018
$
42.7
$
264.3
$
0.2
1.3
2017
558.3
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
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.
(in millions)
Wolverine Michigan Group:
Wholesale
Consumer-direct
Total
Wolverine Boston Group:
Wholesale
Consumer-direct
Total
Other:
Wholesale
Consumer-direct
Total
Total revenue
2019
Fiscal Year
2018
2017
$
1,134.9
$
1,129.2
$
164.8
1,299.7
143.0
1,272.2
743.4
167.5
910.9
57.9
5.2
63.1
762.0
133.5
895.5
64.1
7.4
71.5
1,144.3
123.5
1,267.8
814.5
174.3
988.8
74.3
19.1
93.4
$
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)
Product returns reserve
Customer markdowns reserve
Other sales incentives reserve
Customer rebates liability
Customer advances liability
December 28,
2019
December 29,
2018
$
$
11.4
4.4
2.3
12.0
7.2
13.6
4.0
2.3
12.8
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
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)
Term Loan A, due December 6, 2023
Senior Notes, 5.000% interest, due September 1, 2026
Borrowings under revolving credit agreements
Capital lease obligation
Unamortized deferred financing costs
Total debt
December 28,
2019
December 29,
2018
$
$
192.5
250.0
360.0
—
(4.1)
798.4
$
$
200.0
250.0
125.0
0.4
(4.9)
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
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)
Annual maturities of debt
2020
2021
2022
2023
2024
Thereafter
$
372.5
$
10.0
$
10.0
$
160.0
$
— $
250.0
52
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
(In millions)
Land
Buildings and leasehold improvements
Furniture, fixtures and equipment
Software
Gross cost
Less: accumulated depreciation
Property, plant and equipment, net
December 28,
2019
December 29,
2018
$
$
3.9
123.2
136.8
61.1
325.0
184.0
141.0
$
$
3.9
108.8
162.5
106.6
381.8
250.9
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
The following is a summary of the Company’s lease cost.
(In millions)
Operating lease cost
Variable lease cost
Short-term lease cost
Sublease income
Total lease cost
Fiscal Year
2019
32.6
14.5
1.2
(4.0)
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)
2020
2021
2022
2023
2024
Thereafter
Total future payments
Less: imputed interest
Recognized lease liability
Operating Leases
34.1
$
30.3
27.6
20.5
17.7
105.1
235.3
54.0
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
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)
Foreign exchange contracts:
Hedge contracts
Non-hedge contracts
Interest rate swap
Cross currency swap
The recorded fair values of the Company’s derivative instruments are as follows:
(In millions)
Financial assets:
Foreign exchange contracts - hedge
Interest rate swap
Financial liabilities:
Foreign exchange contracts - hedge
Interest rate swap
Cross currency swap
12. STOCK-BASED COMPENSATION
December 28,
2019
December 29,
2018
$
246.3
7.3
355.8
79.8
220.3
4.8
181.3
95.8
December 28,
2019
December 29,
2018
$
$
2.3
—
(1.8)
(1.8)
(3.0)
8.7
1.6
—
—
(8.2)
$
$
$
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
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:
Unvested at December 31, 2016
Granted
Vested
Forfeited
Unvested at December 30, 2017
Granted
Vested
Forfeited
Unvested at December 29, 2018
Granted
Vested
Forfeited
Unvested at December 28, 2019
Restricted
Awards
1,947,378
762,078
(445,939)
(238,445)
2,025,072
609,276
(560,263)
(153,712)
1,920,373
554,092
(681,938)
(173,611)
1,618,916
$
$
$
$
Weighted-
Average
Grant Date
Fair Value
21.24
23.06
22.03
21.66
21.70
31.81
22.93
23.81
24.38
34.73
24.63
28.47
27.36
Performance
Awards
1,730,886
511,722
(173,894)
(378,046)
1,690,668
384,657
(229,023)
(215,284)
1,631,018
370,830
(654,021)
(220,725)
1,127,102
$
$
$
$
Weighted-
Average
Grant Date
Fair Value
21.86
25.14
27.01
25.04
21.54
35.10
26.64
26.18
23.42
37.10
17.46
19.74
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
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.
Expected market price volatility (1)
Risk-free interest rate (2)
Dividend yield (3)
Expected term (4)
2019
29.6%
2.5%
1.0%
4 years
Fiscal Year
2018
29.6%
2.5%
0.8%
4 years
2017
29.3%
1.7%
1.0%
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:
Outstanding at December 31, 2016
Granted
Exercised
Canceled
Outstanding at December 30, 2017
Granted
Exercised
Canceled
Outstanding at December 29, 2018
Granted
Exercised
Canceled
Outstanding at December 28, 2019
Unvested at December 28, 2019
Exercisable at December 28, 2019
Shares Under
Option
7,493,662
93,274
(1,267,269)
(230,003)
6,089,664
28,171
(1,359,387)
(56,446)
4,702,002
25,471
(681,389)
(12,977)
4,033,107
(44,250)
3,988,857
Weighted-
Average Exercise
Price
Average
Remaining
Contractual Term
(Years)
Aggregate
Intrinsic Value
(In millions)
$
$
$
$
$
19.55
23.85
17.15
21.37
20.05
31.85
17.69
17.12
20.83
34.81
17.87
23.97
21.41
21.27
6.4
$
28.7
5.8
$
72.1
5.2
$
54.5
4.4
4.4
$
$
49.8
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
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
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:
(In millions)
Change in projected benefit obligations:
Projected benefit obligations at beginning of the year
Service cost pertaining to benefits earned during the year
Interest cost on projected benefit obligations
Actuarial loss (gain)
Benefits paid to plan participants
Settlement
Projected benefit obligations at end of the year
Change in fair value of pension assets:
Fair value of pension assets at beginning of the year
Actual return (loss) on plan assets
Company contributions - pension
Company contributions - SERP
Benefits paid to plan participants
Settlement
Fair value of pension assets at end of the year
Funded status
Amounts recognized in the consolidated balance sheets:
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized
Funded status of pension plans and SERP (supplemental):
Funded status of qualified defined benefit plans and SERP
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
Net funded status of pension plans and SERP (supplemental)
Fiscal Year
2019
2018
348.8
5.5
15.2
45.4
(13.9)
—
401.0
$
$
$
254.4
44.7
—
2.4
(13.9)
—
287.6
$
(113.4) $
— $
(3.7)
(109.7)
(113.4) $
443.4
6.3
16.5
(31.6)
(19.2)
(66.6)
348.8
299.6
(22.6)
60.7
2.5
(19.2)
(66.6)
254.4
(94.4)
1.4
(3.8)
(92.0)
(94.4)
(113.4) $
(94.4)
59.6
(53.8) $
57.4
(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
The following is a summary of net pension and SERP expense recognized by the Company:
(In millions)
Service cost pertaining to benefits earned during the year
Interest cost on projected benefit obligations
Expected return on pension assets
Net amortization loss
Settlement loss
Net pension expense
Less: SERP expense
Qualified defined benefit pension plans expense
2019
Fiscal Year
2018
2017
$
$
$
5.5
15.2
(17.7)
2.6
—
5.6
5.4
0.2
$
$
$
6.3
16.5
(21.5)
3.3
7.2
11.8
5.5
6.3
$
$
$
7.2
17.7
(19.8)
9.8
—
14.9
5.5
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:
Weighted-average assumptions used to determine benefit obligations at fiscal year-end:
Discount rate
Rate of compensation increase - pension
Rate of compensation increase - SERP
Weighted average assumptions used to determine net periodic benefit cost for the years
ended:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase - pension
Rate of compensation increase - SERP
Fiscal Year
2019
2018
3.60%
4.23%
7.00%
4.46%
6.75%
3.82%
7.00%
4.46%
3.82%
7.00%
3.80%
7.00%
3.92%
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
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:
(In millions)
Equity securities
Fixed income securities
Real estate investments
Other
Fair value of plan assets
December 28, 2019
December 29, 2018
Total
% of Total
Total
% of Total
$
$
162.2 1
106.2 1
16.9 1
2.3 2
287.6
56.4% $
36.9%
5.9%
0.8%
100.0% $
138.2 1
98.0 1
16.1 1
2.1 2
254.4
54.4%
38.5%
6.3%
0.8%
100.0%
1
2
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.
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)
Expected benefit payments
2020
2021
2022
2023
2024
2025-2029
$
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:
(In millions)
United States
Foreign
Earnings (loss) before income taxes
The provisions for income tax expense (benefit) consist of the following:
(In millions)
Current expense:
Federal
State
Foreign
Deferred expense (credit):
Federal
State
Foreign
Income tax provision
2019
79.3
66.6
145.9
$
$
$
$
Fiscal Year
2018
159.2
68.2
227.4
$
$
2017
(78.2)
67.6
(10.6)
2019
Fiscal Year
2018
2017
$
$
10.6
0.5
12.5
(5.8)
(2.0)
1.2
17.0
$
$
6.7
2.4
10.9
2.1
3.3
1.7
27.1
$
$
48.1
1.9
14.0
(72.0)
(0.2)
(1.7)
(9.9)
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:
(In millions)
Income taxes at U.S. statutory rates of 21%, 21% and 35%
State income taxes, net of federal income tax
(Nontaxable earnings) non-deductible losses of foreign affiliates:
Cayman Islands
Other
Foreign earnings taxed at rates different from the U.S. statutory rate:
Hong Kong
Other
Adjustments for uncertain tax positions
Change in valuation allowance
Change in state tax rates
Transition tax due to TCJA
Remeasurement of U.S. deferred taxes due to TCJA
Global Intangible Low Tax Income tax
Foreign Derived Intangible Income tax benefit
Non-deductible executive compensation
Permanent adjustments related to employee share based compensation
Deferred tax on future cash dividends
Other Permanent adjustments and non-deductible expenses
Other
Income tax provision
$
2019
Fiscal Year
2018
2017
$
30.6
$
47.7
$
0.5
—
(0.1)
(8.5)
2.8
(1.0)
(0.2)
(1.5)
—
—
2.1
(4.4)
2.0
(5.1)
0.6
(0.6)
(0.2)
17.0
2.8
—
(0.1)
(10.8)
(3.1)
(1.4)
3.3
1.9
(0.1)
—
3.7
(6.8)
0.9
(3.8)
(0.9)
(6.7)
0.5
$
27.1
$
(3.7)
(4.2)
(3.5)
(0.3)
(17.3)
3.5
0.4
3.0
0.1
58.1
(52.5)
—
—
0.7
(1.9)
3.0
0.6
4.1
(9.9)
Significant components of the Company’s deferred income tax assets and liabilities are as follows:
(In millions)
Deferred income tax assets:
Accounts receivable and inventory valuation allowances
Deferred compensation accruals
Accrued pension expense
Stock-based compensation
Net operating loss and foreign tax credit carryforwards
Book over tax depreciation and amortization
Tenant lease expenses
Environmental reserve
Other
Total gross deferred income tax assets
Less valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Intangible assets
Tax over book depreciation and amortization
Other
Total deferred income tax liabilities
Net deferred income tax liabilities
62
December 28,
2019
December 29,
2018
$
$
$
5.7
4.0
25.3
14.5
17.6
0.5
3.6
15.4
5.1
91.7
(17.6)
74.1
(157.5)
(8.6)
(4.1)
(170.2)
(96.1) $
4.9
6.9
21.6
16.9
19.2
0.8
4.1
5.0
5.8
85.2
(17.8)
67.4
(157.3)
(8.3)
(6.6)
(172.2)
(104.8)
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:
(In millions)
Unrecognized tax benefits at beginning of the year
Increases related to current year tax positions
Decreases related to prior year positions
Decreases relating to settlements with taxing authorities
Decrease due to lapse of statute
Unrecognized tax benefits at end of the year
Fiscal Year
2019
2018
$
$
7.9
1.6
(1.4)
(1.2)
—
6.9
$
$
9.3
0.8
(2.0)
—
(0.2)
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.
63
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.
The change in accumulated other comprehensive income (loss) during fiscal years 2019 and 2018 is as follows:
(In millions)
Balance of AOCI as of December 30, 2017
Other comprehensive income (loss) before reclassifications (1)
Amounts reclassified from accumulated other comprehensive
income (loss)
Income tax (expense) benefit
Net reclassifications
Net current-period other comprehensive income (loss) (1)
Reclassifications to retained earnings (4)
Balance of AOCI as of December 29, 2018
Other comprehensive income (loss) before reclassifications (1)
Amounts reclassified from accumulated other comprehensive
income (loss)
Income tax (expense) benefit
Net reclassifications
Net current-period other comprehensive income (loss) (1)
Balance of AOCI as of December 28, 2019
Foreign
currency
translation
adjustments
(32.7)
(20.3)
$
—
—
—
(20.3)
—
(53.0)
5.4
—
—
—
5.4
(47.6)
$
$
$
Derivatives
$
$
$
$
(2)
(2)
(13.9)
14.4
3.8
(1.3)
2.5
16.9
(2.1)
0.9
0.9
(9.8)
2.2
(7.6)
(6.7)
(5.8)
Pension
adjustments
(28.6)
(9.9)
$
(3)
(3)
10.5
(2.2)
8.3
(1.6)
(6.0)
(36.2)
(14.6)
2.6
(0.5)
2.1
(12.5)
(48.7)
$
$
$
Total
(75.2)
(15.8)
14.3
(3.5)
10.8
(5.0)
(8.1)
(88.3)
(8.3)
(7.2)
1.7
(5.5)
(13.8)
(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.
64
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.
(In millions)
Financial assets:
Derivatives
Financial liabilities:
Derivatives
Fair Value Measurements
Quoted Prices With Other Observable Inputs
(Level 2)
December 28, 2019
December 29, 2018
$
$
2.3
$
(6.6) $
10.3
(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)
Carrying value
Fair value
December 28, 2019
798.4
$
817.6
$
December 29, 2018
570.1
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™.
65
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.
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”).
66
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
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:
(In millions)
Remediation liability at beginning of the year
Changes in estimate
Amounts paid
Remediation liability at the end of the year
Fiscal Year
2019
2018
$
$
22.6
$
112.9
(11.1)
124.4
$
31.1
4.8
(13.3)
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.
67
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)
Minimum royalties
Minimum advertising
2020
2021
2022
2023
2024
Thereafter
$
$
1.5
3.2
$
1.7
3.3
$
1.8
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
• 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.
68
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.
(In millions)
Revenue:
Wolverine Michigan Group
Wolverine Boston Group
Other
Total
Operating profit (loss):
Wolverine Michigan Group
Wolverine Boston Group
Other
Corporate
Total
Depreciation and amortization expense:
Wolverine Michigan Group
Wolverine Boston Group
Other
Corporate
Total
Capital expenditures:
Wolverine Michigan Group
Wolverine Boston Group
Other
Corporate
Total
(In millions)
Total assets:
Wolverine Michigan Group
Wolverine Boston Group
Other
Corporate
Total
Goodwill:
Wolverine Michigan Group
Wolverine Boston Group
Total
2019
Fiscal Year
2018
2017
$
$
$
$
$
$
$
$
1,299.7
910.9
63.1
2,273.7
244.8
153.8
2.9
(230.5)
171.0
2.4
3.3
2.4
24.6
32.7
2.2
5.7
2.2
24.3
34.4
$
$
$
$
$
$
$
$
$
$
$
$
1,272.2
895.5
71.5
2,239.2
257.6
157.5
3.1
(166.3)
251.9
2.7
3.3
3.1
22.4
31.5
3.1
1.2
1.8
15.6
21.7
December 28,
2019
773.8
1,354.8
38.4
313.0
2,480.0
144.4
294.5
438.9
$
$
$
$
$
$
$
$
$
$
$
$
1,267.8
988.8
93.4
2,350.0
243.7
153.6
5.2
(370.9)
31.6
2.9
3.7
3.5
27.1
37.2
0.5
1.6
1.8
28.5
32.4
December 29,
2018
626.8
1,282.2
50.0
224.1
2,183.1
143.8
280.6
424.4
69
Geographic dispersion of revenue from external customers, based on shipping destination is as follows:
(In millions)
United States
Foreign:
Europe, Middle East and Africa
Asia Pacific
Canada
Latin America
Total from foreign territories
Total revenue
2019
Fiscal Year
2018
2017
$
1,507.9
$
1,505.2
$
1,608.7
343.1
193.7
117.9
111.1
765.8
$
2,273.7
$
325.7
186.0
116.7
105.6
734.0
2,239.2
$
322.4
189.4
121.2
108.3
741.3
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)
United States
Foreign countries
Total
December 28,
2019
December 29,
2018
December 30,
2017
$
$
247.2
54.6
301.8
$
$
117.1
13.8
130.9
$
$
122.4
14.3
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)
Cash paid
Extinguishment of Sportlab’s accounts payable balance
Contingent consideration
Total purchase consideration
Purchase Consideration
$
$
15.1
4.6
5.5
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.
70
The final allocation of the purchase price as of December 28, 2019 was:
(In millions)
Accounts receivable
Inventories
Goodwill
Amortizable intangibles
Total assets acquired
Deferred income taxes
Other liabilities
Total liabilities assumed
Net assets acquired
Final Valuation
1.8
6.2
12.0
12.9
32.9
3.2
4.5
7.7
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)
Inventory
Prepaid expenses and other current assets
Other accrued liabilities
Total assets and liabilities sold
Book Value
$
$
17.1
1.4
(1.8)
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)
Indefinite-lived intangibles
Amortizable intangibles
Total assets sold
Book Value
5.4
0.2
5.6
$
71
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)
Inventory
Prepaid expenses and other current assets
Property, plant and equipment
Total assets sold
Book Value
$
$
5.6
0.5
3.0
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)
Revenue
Gross profit
Net earnings (loss) attributable to Wolverine
World Wide, Inc.
Net earnings (loss) per share:
Basic
Diluted
(In millions, except per share data)
Revenue
Gross profit
Net earnings attributable to Wolverine World
Wide, Inc.
Net earnings per share:
Basic
Diluted
$
$
$
$
March 30, 2019
June 29, 2019
September 28, 2019 December 28, 2019
607.4
$
229.9
574.3
243.3
$
48.7
$
0.57
0.57
(0.9)
(0.01)
(0.01)
$
0.45
0.45
Fiscal 2018 Quarters Ended
March 31, 2018
June 30, 2018
September 29, 2018
558.6
$
232.1
December 29, 2018
579.6
$
227.1
568.6
230.4
40.2
566.9
234.2
55.3
$
0.58
0.57
58.8
$
0.62
0.60
39.3
0.39
0.39
$
$
523.4
220.2
40.5
0.44
0.43
$
$
534.1
227.9
46.7
0.49
0.48
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, 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.
73
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
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, 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
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, 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.
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.
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
3.2
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.
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.
77
Exhibit
Number
Document
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Description of the Registrant's Securities Registered Pursuant To Section 12 of The Securities Exchange
Act of 1934.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
78
Exhibit
Number
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Document
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
79
Exhibit
Number
10.38
10.39
10.40
10.41
10.42
10.43
21
23
31.1
31.2
32
101
104
Document
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.
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.
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.
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.
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.
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.
Subsidiaries of Registrant.
Consent of Ernst & Young LLP.
Certification of Chairman, Chief Executive Officer and President under Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of Senior Vice President, Chief Financial Officer and Treasurer under Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. § 1350.
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.
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.
80
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.
SIGNATURES
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
Blake W. Krueger
/s/ Michael D. Stornant
Michael D. Stornant
/s/ Jeffrey M. Boromisa
Jeffrey M. Boromisa
/s/ Gina R. Boswell
Gina R. Boswell
/s/ Roxane Divol
Roxane Divol
/s/ William K. Gerber
William K. Gerber
/s/ David T. Kollat
David T. Kollat
/s/ Brenda J. Lauderback
Brenda J. Lauderback
/s/ Nicholas T. Long
Nicholas T. Long
/s/ David W. McCreight
David W. McCreight
/s/ Michael A. Volkema
Michael A. Volkema
Chairman, Chief Executive Officer and
President (Principal Executive Officer)
February 26, 2020
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
February 26, 2020
Director
Director
Director
Director
Director
Director
Director
Director
Director
81
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
February 26, 2020
APPENDIX A
Schedule II - Valuation and Qualifying Accounts
Wolverine World Wide, Inc. and Subsidiaries
Column A
Column B
Column C
Additions
Column D
Column E
(In millions)
Fiscal Year Ended December 28, 2019
Deducted from asset accounts:
Allowance for doubtful accounts
Allowance for sales returns
Allowance for cash discounts
Inventory valuation allowances
Total
Fiscal Year Ended December 29, 2018
Deducted from asset accounts:
Allowance for doubtful accounts
Allowance for sales returns
Allowance for cash discounts
Inventory valuation allowances
Total
Fiscal Year Ended December 30, 2017
Deducted from asset accounts:
Allowance for doubtful accounts
Allowance for sales returns
Allowance for cash discounts
Inventory valuation allowances
Total
Balance at
Beginning of
Period
(1)
Charged to
Costs and
Expenses
(2)
Charged to
Other
Accounts
(Describe)
Deductions
(Describe)
Balance at
End of
Period
$
$
$
$
$
$
9.5
13.6
3.5
8.3
34.9
14.2
12.6
4.7
11.5
43.0
17.2
16.3
5.9
18.0
57.4
$
$
$
$
$
$
16.3
50.2
4.1
6.9
77.5
13.0
53.8
7.7
6.1
80.6
18.1
52.6
17.9
10.6
99.2
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
13.7
52.4
4.4
7.9
78.4
17.7
52.8
8.9
9.3
88.7
(A) $
(B)
(C)
(D)
$
(A) $
(B)
(C)
(D)
$
21.1
56.3
19.1
17.1
113.6
(A) $
(B)
(C)
(D)
$
12.1
11.4
3.2
7.3
34.0
9.5
13.6
3.5
8.3
34.9
14.2
12.6
4.7
11.5
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
S H A R E H O L D E R I N F O R M AT I O N
C O R P O R AT E I N F O R M AT I O N
CORPORATE HEADQUARTERS
9341 Courtland Drive, N.E.
Rockford, Michigan 49351
Telephone 616.866.5500
COMMON STOCK LISTING
New York Stock Exchange
(Symbol: WWW)
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
REGISTRAR AND TRANSFER AGENT
Computershare
P.O. Box 30170
College Station, Texas 77842-3170
Telephone 800.622.6757 (U.S., Canada & Puerto Rico)
781.575.4735 (International)
INVESTOR RELATIONS
Michael D. Stornant
Senior Vice President,
Chief Financial Officer & Treasurer
WEBSITES
Company: www.wolverineworldwide.com
Shareholder: www.wolverineworldwide.gcs-web.com
Inquiries: www.wolverineworldwide.com/contact-us/investor-contact/
FORM 10-K REPORT
A copy of this Annual Report and the Annual Report to the
Securities and Exchange Commission on Form 10-K for 2019,
including the consolidated financial statements and financial
statement schedules, may be obtained by any shareholder
without charge by writing General Counsel and Secretary, 9341
Courtland Drive, N.E., Rockford, Michigan 49351 or by accessing
the “Investor Relations” section of the Company’s website at
www.wolverineworldwide.com.
ANNUAL MEETING
The annual meeting of shareholders will be held at the Company’s
offices at the Company’s headquarters at 9341 Courtland Drive NE.,
Rockford, Michigan on April 30, 2020, at 10:00 a.m. E.D.T, subject to
modification as set forth in the proxy statement and proxy card for
the 2020 Annual Meeting.
A SPECIAL OFFER FOR OUR SHAREHOLDERS
We encourage you to experience our brands for yourself. Shareholders
are invited to take advantage of a special 30% discount on Company
products. Please contact a member of our Consumer Relations team
at the special Wolverine Worldwide Shareholder toll-free number,
1-866-889-3151, to receive more information about this offer.
A member of our Consumer Relations team can assist shareholders
with placing an order for any of our company products available at
one of our branded websites:
Batesfootwear.com | Catfootwear.com | Chacos.com
Harley-davidsonfootwear.com | Hushpuppies.com
Keds.com | Merrell.com | Onlineshoes.com | Saucony.com
Sperry.com | Wolverine.com
2019 ANNUAL REPORT