Business description of WOLVERINE-WORLD-WIDE-INC-DE from last 10-k form
2
FORWARD-LOOKING
STATEMENTS
This document contains “forward-looking
statements” – that is, statements relating to
future, not past, events. In this context, forward-looking
statements often address management’s beliefs, assumptions,
current expectations, estimates and projections about future
business and financial performance, global 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. For the Company,
uncertainties that could cause the Company’s performance to
differ materially from what is expressed in forward-looking
statements include:
and many other matters of national, regional and global scale,
including those of a political, environmental, economic,
business and competitive nature. These uncertainties could cause
a material difference between an actual outcome and a
forward-looking statement. These uncertainties are described in
more detail in Part I, Item 1A, “Risk
Factors” of this
Form 10-K
Report. 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.
General
Wolverine World Wide, Inc. (the “Company”) is a
leading marketer of branded casual, active lifestyle, work,
outdoor sport and uniform footwear and apparel and accessories.
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.
Approximately 50 million pairs/units of the Company’s
branded footwear and apparel were sold in the fiscal year ended
January 1, 2011 (“fiscal 2010”) in approximately
190 countries and territories around the world. The
Company’s products generally feature contemporary styling
with proprietary technologies designed to provide maximum
comfort and performance. The products are marketed throughout
the world under widely recognized brand names, including
Bates®,
Cat®
Footwear,
Chaco®,
Cushe®,
Harley-Davidson®
Footwear, Hush
Puppies®,
HyTest®,
Merrell®,
Patagonia®
Footwear,
Sebago®,
Soft
Style®
and
Wolverine®.
The Company believes that its primary competitive advantages are
its well-recognized brand names, its patented proprietary
designs and comfort technologies, its wide range of distribution
channels and its diversified manufacturing and sourcing base.
Cat®
is a registered trademark of Caterpillar Inc.,
Harley-Davidson®
is a registered trademark of H-D Michigan, Inc. and
Patagonia®
is a registered trademark of Patagonia, Inc.
The Company’s products are sold at various price points
under a variety of brand names designed to appeal to a wide
range of consumers of casual, work and outdoor footwear. The
Company’s wholesale footwear and apparel business is
organized into four operating segments: (i) the Outdoor
Group, consisting of
Merrell®,
Patagonia®
and
Chaco®
footwear, and
Merrell®
brand apparel, (ii) the Wolverine Footwear Group,
consisting of the
Bates®,
HyTest®
and
Wolverine®
boots and shoes, and
Wolverine®
brand apparel, (iii) the Heritage Brands Group, consisting
of
Cat®
footwear,
Harley-Davidson®
footwear and
Sebago®
footwear and apparel, and (iv) The Hush Puppies Group,
consisting of Hush
Puppies®
footwear, Soft
Style®
footwear and
Cushe®
footwear. The Company also licenses some of its brands for use
on non-footwear products.
The Company’s Global Operations Group is responsible for
manufacturing, sourcing, distribution and customer support for
the Company’s business. The Company sells products in the
United States, Canada and approximately 10 countries in Europe
to a wide range of retail customers, including department
stores, national chains, catalogs, specialty retailers, mass
merchants and Internet retailers, and to governments and
municipalities. Many of the retailers carrying Wolverine
products operate multiple storefront locations. The
Company’s products are marketed worldwide in a total of
approximately 190 countries and territories through
Company-owned wholesale and retail operations, licensees and
distributors.
For financial information regarding the Company, see the
consolidated financial statements and the accompanying notes,
which are attached as Appendix A to this
Form 10-K.
The Company has one reportable segment, branded footwear,
apparel, and licensing. The branded footwear, apparel, and
licensing segment engages in manufacturing, sourcing, licensing,
marketing and distributing branded footwear and apparel,
including casual shoes and apparel, boots, uniform shoes, work
shoes and rugged outdoor footwear and apparel. The
Company’s other operating segments consist of its
consumer-direct operations and leather and pigskin procurement
operations, which are described below. Financial information
regarding the Company’s reportable segment and other
operating segments and financial information by geographic area
is found in Note 9 to the consolidated financial statements
of the Company that are attached as Appendix A to this
Annual Report on
Form 10-K.
Branded
Footwear, Apparel and Licensing
The Company sources and markets a broad range of footwear
styles, including shoes, boots and sandals under many
recognizable brand names, including
Bates®,
Cat®,
Chaco®,
Cushe®,
Harley-Davidson®,
Hush
Puppies®,
HyTest®,
Merrell®,
Patagonia®,
Sebago®,
Soft
Style®
and
Wolverine®.
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 also markets
Merrell®,
Sebago®,
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 and
Wolverine®
brand eyewear and gloves.
The Company’s branded footwear, apparel, and licensing
operating segments for fiscal 2010 are described below.
Merrell®
Footwear: The
Merrell®
footwear line consists primarily of technical hiking, rugged
outdoor and outdoor-inspired casual footwear designed for
backpacking, day hiking and everyday use. The
Merrell®
footwear line also includes the “After-Sport”
category, incorporating
Merrell®
footwear’s technical hiking and outdoor expertise with
Wolverine Performance
Leatherstm
and other technical materials to create footwear with unique
styling, performance and comfort features.
Merrell®
footwear products are sold primarily through sporting goods
chains, outdoor specialty retailers, department stores, on-line
retailers and catalogs.
Merrell®
footwear is marketed in approximately 150 countries and
territories worldwide.
Merrell®
Apparel and Accessories: The
Merrell®
apparel line consists primarily of technical outdoor and
outdoor-inspired casual apparel and performance socks. In
addition to
Merrell®
apparel, the Outdoor Group markets
Merrell®
accessories, including packs, bags and luggage.
Patagonia®
Footwear: Pursuant to an agreement with Lost
Arrow Corporation, the Company has the exclusive footwear
marketing and distribution rights under
Patagonia®
and other trademarks. The
Patagonia®
footwear line focuses primarily on casual and outdoor
performance footwear.
Patagonia®
is a registered trademark of Patagonia, Inc.
Chaco®
Footwear: The
Chaco®
brand, which the Company acquired in January 2009, was created
to meet the needs of the whitewater enthusiast and continues to
focus primarily on performance sandals for the outdoor
enthusiast. In order to help evolve the brand into a four-season
offering, the Company introduced closed-toe products in fall
2010.
Chaco®
footwear is sold primarily through specialty outdoor retailers
and department stores.
Wolverine®
Footwear: The
Wolverine®
brand offers high quality work boots and shoes that incorporate
innovative technologies to deliver comfort and durability. The
Wolverine®
brand, which has been in existence for 128 years, markets
work and outdoor footwear in three categories: (i) work and
industrial; (ii) outdoor sport; and (iii) rugged
casual. The development of
DuraShocks®,
MultiShox®,
Wolverine
Fusion®
and Wolverine
Compressor®
technologies as well as the development of the Contour
Welt®
line have allowed the
Wolverine®
brand to introduce a broad line of work footwear with a focus on
comfort. The
Wolverine®
work product line features work boots and shoes with protective
features such as toe caps, metatarsal guards and electrical
hazard protection; the target consumers for the
Wolverine®
work product line are industrial and farm workers. The
Wolverine®
rugged casual and outdoor sport product lines incorporate
DuraShocks®,
Wolverine
iCStm
and other technologies and comfort features into products
designed for casual and outdoor sport use. The target consumers
for the
rugged casual line products have active lifestyles. The outdoor
sport line is designed to meet the needs of hunters, fishermen
and other active outdoor sports enthusiasts.
Wolverine®
Apparel and Licensing: The Wolverine Footwear
Group markets a line of work and rugged casual
Wolverine®
brand apparel. In addition, the Company licenses its
Wolverine®
brand for use on eyewear and gloves.
Bates®
Uniform Footwear: The Bates Uniform Footwear
Division is a leader in supplying footwear to military and
civilian uniform users. The Bates Uniform Footwear Division
utilizes
DuraShocks®,
DuraShocks
SRtm,
CoolTech, Wolverine
iCStm
and other proprietary comfort technologies in the design of its
military-style boots and oxfords. The Bates Uniform Footwear
Division contracts with the U.S. Department of Defense and
the military branches of several foreign countries to supply
military footwear. Civilian uniform users include individuals in
police, security, postal, restaurant and other industrial
occupations. The Bates Uniform Footwear Division’s products
are also distributed through specialty retailers and catalogs.
HyTest®
Safety Footwear: The
HyTest®
product line consists primarily of high-quality work boots and
shoes that incorporate various specialty safety features
designed to protect against hazards of the workplace, including
steel toe, composite toe, metatarsal guards, and electrical
hazard, 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.
Cat®
Footwear: Pursuant to a license arrangement
with Caterpillar Inc., the Company has exclusive footwear
marketing and distribution rights under
Caterpillar®,
Cat®,
Cat & Design, Walking
Machines®
and other trademarks. The Company believes the association with
Cat®
equipment encourages customers to characterize the footwear as
high-quality, rugged and durable.
Cat®
brand footwear products include work boots and shoes, sport
boots, rugged casual and lifestyle footwear, including lines of
work and casual footwear featuring
iTechnologytm
and Hidden
Tracks®
comfort features.
Cat®
footwear targets work and industrial users and active lifestyle
users.
Cat®
footwear is marketed in approximately 145 countries and
territories worldwide.
Cat®,
Caterpillar®,
Cat & Design and Walking
Machines®
are registered trademarks of Caterpillar Inc.
Harley-Davidson®
Footwear: Pursuant to a license arrangement
with the Harley-Davidson Motor Company, the Company has the
exclusive footwear marketing and distribution rights for
Harley-Davidson®
branded footwear.
Harley-Davidson®
branded footwear products include motorcycle, casual, fashion,
work and western footwear for men, women and children.
Harley-Davidson®
footwear is sold globally through a network of independent
Harley-Davidson®
dealerships, department stores and specialty retailers.
Harley-Davidson®
is a registered trademark of H-D Michigan, Inc.
Sebago®: The
Sebago®
product line has been marketed since 1946 and consists primarily
of performance nautical and American-inspired casual footwear
for men and women, such as boat shoes and hand sewn loafers.
Highly recognized
Sebago®
line extensions include Sebago
Docksidestm,
Drysidestm
and Athletic Marine. The
Sebago®
product line is marketed in approximately 125 countries and
territories worldwide. The
Sebago®
manufacturing and design tradition of quality components,
durability, comfort and “Americana” heritage is
further supported by targeted distribution to better-grade
independent, marine and department store retailers throughout
the world. The Company also markets a classic and marine
Sebago®
apparel line.
Hush
Puppies®: Since
1958, the Hush
Puppies®
brand has been a leader in casual footwear. The brand offers
shoes, sandals and boots for men, women and children, and is
marketed in approximately 140 countries and territories. The
modern styling is complemented by a variety of comfort features
and proprietary technologies that have earned the brand its
reputation for comfort, style and value. In addition, the
Hush
Puppies®
brand is licensed for use on certain items, including apparel,
eyewear, handbags, socks, watches and plush toys.
Soft
Style®: The
Soft
Style®
product line consists primarily of women’s dress and casual
footwear.
Cushe®: The
Cushe®
business was acquired in January 2009 and focuses on relaxed,
design-led footwear for active men and women. The
Cushe®
Footwear business targets younger adult consumers and
better-grade retailers with products ranging from sport casual
footwear to sandals.
Cushe®
is marketed under three primary collections: Universal Traveler,
Urban Safari and Coastal Supremacy.
Other
Businesses
In addition to its branded footwear, apparel and licensing
operations, the Company also (i) operates 81 retail stores
in North America and 7 retail stores in the United Kingdom that
feature footwear and apparel, (ii) operates a performance
leathers business through its Wolverine Leathers Division; and
(iii) purchased and cured raw pigskins for sale to various
customers through its wholly-owned subsidiary, Wolverine
Procurement, Inc.
Marketing
The Company’s marketing strategy is to develop
brand-specific plans and related promotional materials for
U.S. and international markets to foster a consistent
message for each of the Company’s core brands. Each brand
group has dedicated marketing personnel who develop the
marketing strategy for brands within that group. Marketing
campaigns and strategies vary by brand and are designed to
target accounts
and/or end
users as the brand groups
strive 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 aspects of the
Company’s products. Components of the brand-specific plans
vary and may include print, radio and television advertising,
social networking sites, event sponsorships, in-store
point-of-purchase
displays, promotional materials, and sales and technical
assistance.
The Company’s brand groups provide its licensees and
distributors with creative direction, brand images and other
materials to convey consistent brand messaging, including
(i) direction on the categories of footwear to be promoted,
(ii) photography and layouts, (iii) broadcast
advertising, including commercials and film footage,
(iv) point-of-purchase
presentation specifications, blueprints and packaging,
(v) sales materials and (vi) consulting services
regarding retail store layout and design. The Company believes
its brand names provide it with a competitive advantage and the
Company makes significant expenditures on marketing and
promotion to support the position of its products and enhance
brand awareness.
Domestic
Sales and Distribution
The Company uses a wide variety of domestic distribution
channels and strategies to distribute its branded products:
In addition to its wholesale activities, the Company also
operates a consumer-direct business as described above. The
Company continues to develop new programs, both independently
and in conjunction with its consumer-direct customers, for the
distribution of its products.
A broad distribution base insulates the Company from dependence
on any one customer. No customer of the Company accounted for
more than 10% of the Company’s revenue in fiscal 2010.
The Company experiences moderate fluctuations in sales volume
during the year as reflected in quarterly revenue (and taking
into consideration the 16 weeks or 17 weeks included
in the Company’s fourth accounting quarter versus the
12 weeks included in the first three accounting quarters).
The Company expects current seasonal sales patterns to continue
in future years. The Company also experiences some fluctuation
in its levels of working capital, typically including an
increase in working capital requirements near the end of the
first and third quarters. The Company meets its working capital
requirements through effective cash generation and, as needed, a
revolving credit agreement.
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 approximately eight branch offices in Europe;
(ii) sales to third-party distributors for certain markets
and businesses; and (iii) royalty income from a network of
third-party licensees and distributors. The Company’s 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 develop sales in other markets without the
capital commitment required to maintain related foreign
operations, employees, inventories or localized marketing
programs.
The Company continues to develop its network of licensees and
distributors to market its branded products. The Company assists
its licensees in designing products that are appropriate to each
foreign market, but consistent with the global brand position.
Pursuant to distribution or license agreements, third-party
licensees and distributors either purchase goods from the
Company or authorized third-party manufacturers or manufacture
branded products consistent with Company standards. Distributors
and licensees are responsible for independently marketing and
distributing Company branded products in their respective
territories, with product and marketing support from the Company.
Manufacturing
and Sourcing
The Company directly controls the majority of the units of
footwear and apparel manufactured or sourced under the
Company’s brand names. The balance is controlled directly
by the Company’s licensees. A substantial majority of the
units sourced
and/or
manufactured by the Company are purchased or sourced from third
parties, with the remainder produced at Company-owned
facilities. The Company sources a majority of its footwear from
numerous third-party manufacturers in the Asia-Pacific region,
South America and India. The Company maintains offices in the
Asia-Pacific region to facilitate and develop strategies for the
sourcing and importation of quality footwear and apparel. 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 &
Sources,” a policy that requires that the Company’s
domestic and foreign manufacturers, licensees and distributors
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. Footwear produced by the Company is
manufactured at Company-operated facilities located in Michigan
and the Dominican Republic.
The Company’s owned manufacturing operations allow the
Company to (i) reduce its production lead time, enabling it
to more quickly respond to market demand and reduce inventory
risk, (ii) lower freight, shipping and duty costs for sales
to certain markets, and (iii) more closely monitor product
quality. The Company’s third-party sourcing strategy allows
the Company to (i) benefit from lower manufacturing costs
and
state-of-the-art
manufacturing facilities, (ii) source high quality raw
materials from around the world, and (iii) avoid capital
expenditures necessary for additional owned factories. The
Company believes that its overall global manufacturing strategy
provides the flexibility to properly balance the need for timely
shipments, high quality products and competitive pricing.
The Company’s principal required raw material is quality
leather, which it purchases from a select group of domestic and
foreign suppliers. The global availability of common upper
materials and specialty leathers eliminates any reliance by the
Company on a sole 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 for over
30 years. Alternative sources of raw pigskin are available,
but with 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.
The Company is subject to the normal risks of doing business
abroad due to its international operations, including the risk
of expropriation, acts of war or terrorism, political
disturbances and similar events, the imposition of trade
barriers, quotas, tariffs and duties, loss of most favored
nation trading status and currency and exchange rate
fluctuations. With respect to international sourcing activities,
management believes that over a period of time, it could arrange
adequate alternative sources of supply for the products
currently obtained from its foreign suppliers, but that a
sustained disruption of such sources of supply could have an
adverse impact on the Company’s results of operations and
financial position.
Trademarks,
Licenses and Patents
The Company holds a significant portfolio of registered and
common law trademarks that identify its branded products. The
Company’s owned trademarks include Hush
Puppies®,
Wolverine®,
Bates®,
Cushe®,
Chaco®,
Soft
Style®,
Wolverine
Fusion®,
DuraShocks®,
MultiShox®,
Wolverine
Compressor®,
Hidden
Tracks®,
iTechnologytm,
Bounce®,
Comfort
Curve®,
HyTest®,
Merrell®,
M Circle Design (registered design trademark),
Continuum®,
Sebago®,
Q
Form®
and Track ’N
Trail®.
The Company’s Wolverine Leathers Division markets its
pigskin leathers under the trademarks Wolverine Warrior
Leather®,
Weather
Tight®
and All Season Weather
Leatherstm.
The Company has exclusive footwear marketing and distribution
rights under the
Cat®,
Harley-Davidson® and
Patagonia®
trademarks pursuant to license arrangements with the respective
trademark owners. The
Cat®,
Harley-Davidson®,
and
Patagonia®
licenses extend for five or more years and 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 is not aware of any infringing uses or any
prior claims of ownership of its trademarks that could
materially affect its current business. 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 vigorously protects its proprietary rights under
applicable laws.
Order
Backlog
At February 19, 2011, the Company had an order backlog of
approximately $628 million compared to an order backlog of
approximately $424 million at February 20, 2010,
determined on a consistent basis. All of the backlog relates to
orders for products expected to be shipped in 2011. Orders in
the backlog are subject to cancellation by customers and to
changes in planned customer demand or at-once orders. The
backlog at any particular time is affected by a number of
factors, including seasonality, retail conditions, expected
customer demand, product availability and the schedule for the
manufacture and shipment of products. Accordingly, a comparison
of backlog from period to period is not necessarily meaningful
and may not be predictive of eventual actual shipments.
Competition
The Company markets its footwear and apparel lines in a highly
competitive and fragmented environment. The Company competes
with numerous domestic and international marketers and
importers, some of which are larger and have greater resources
than the Company. The Company has at least forty major
competitors for its brands of footwear and apparel. Product
performance and quality, including technological improvements,
product identity, competitive pricing and ability to control
costs, and the ability to adapt to style changes are all
important elements of competition in the footwear and apparel
markets served by the Company. The footwear and apparel
industries in general 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 footwear and apparel industries. Market shares
in the non-athletic footwear and apparel industry are highly
fragmented and no one company has a dominant market position.
Research
and Development
In addition to normal and recurring product development, design
and styling activities, the Company engages in research and
development activities related to the development of new
production techniques and to the improvement of the function,
performance, reliability and quality of its branded footwear and
other products. For example, the Company’s continuing
relationship with the Biomechanics Evaluation Laboratory at
Michigan
State University has helped validate and refine specific
biomechanical design concepts, such as
Bounce®,
DuraShocks®
and Hidden
Tracks®
comfort technologies, which have been incorporated in the
Company’s footwear. While the Company expects to continue
to be a leading developer of footwear innovations, research and
development costs do not represent a material portion of
operating expenses.
Environmental
Matters
Compliance with domestic and foreign federal, state and local
requirements regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment have not had, nor are they expected to have, any
material effect on the capital expenditures, earnings or
competitive position of the Company. The Company uses and
generates certain substances and wastes that are regulated or
may be deemed hazardous under certain federal, state and local
regulations with respect to the environment. The Company works
with domestic and foreign federal, state and local agencies from
time to time to resolve cleanup issues at various waste sites
and other regulatory issues.
Employees
As of January 1, 2011, the Company had approximately 4,139
domestic and foreign production, office and sales employees.
Approximately 51 employees were covered by a single union
contract that expires on March 31, 2011. The Company
presently considers its employee relations to be good.
Available
Information
Information about the Company, including the Company’s Code
of Conduct & Compliance, Corporate Governance
Guidelines, Director Independence Standards, Accounting and
Finance Code of Ethics, Audit Committee Charter, Compensation
Committee Charter, and Governance Committee Charter, is
available at its website at
www.wolverineworldwide.com/investor-relations/corporate-governance.
Printed copies of the documents listed above are available,
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, 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.
Changes in general economic conditions and other factors
affecting consumer spending could adversely affect the
Company’s sales, operating results or financial position
The Company’s global operations depend on factors affecting
consumer disposable income and spending patterns. These factors
include general economic conditions, employment, business
conditions, interest rates and taxation. Customers may defer or
cancel purchases of the Company’s products due to
uncertainty about global economic conditions. Consumer
confidence may decline due to recessionary economic cycles, high
interest rates on consumer or business borrowings, restricted
credit availability, inflation, high levels of unemployment or
consumer debt, high tax rates or other economic factors.
Declining consumer confidence could adversely affect demand for
the Company’s products. Changes in the amount or severity
of bad weather and the growth or decline of global footwear,
apparel or consumer-direct markets could affect negatively
consumer spending patterns. A decline in demand for the
Company’s products could reduce the Company’s revenues
or profit margins.
General economic conditions and regulatory factors such as those
listed above, as well as increased costs of fuel, labor,
commodities, insurance and health care, may increase the
Company’s cost of sales and operating expenses. Such
increases could adversely affect the Company’s financial
position and results of operations.
The Company operates in competitive industries and
markets.
The Company competes with a large number of marketers of
footwear or apparel, and consumer-direct companies. Some of
these competitors are larger and have greater resources than the
Company. Important elements of such competition include product
performance and quality, including technological improvements,
product identity, competitive pricing and the ability to adapt
to style changes. Consumer preferences for and the popularity of
particular designs and categories of footwear and apparel
generally change. The Company strives to maintain and improve
its competitive position through increasing brand awareness,
gaining sourcing efficiencies, and enhancing the style, comfort
and perceived value of its products. The Company’s
continued ability to sell its products at competitive prices and
to meet shifts in consumer preferences will affect its future
sales. If the Company is unable to respond effectively to
competitive pressures and changes in consumer spending, its
results of operations and financial position may be adversely
affected.
Many of the Company’s competitors have more developed
consumer and customer bases, lower prices, or greater financial,
technical or marketing resources than the Company, particularly
in the apparel and consumer-direct businesses. The
Company’s competitors may 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, than the Company. The Company’s
results of operations and financial position could be adversely
affected if the Company’s businesses are not successful.
The Company’s operating results depend on effectively
managing inventory levels.
The Company’s ability to manage its inventories effectively
is an important factor in its operations. Inventory shortages
can impede the Company’s ability to meet orders, adversely
affect the timing of shipments to customers, and, consequently,
diminish brand loyalty. Conversely, excess inventories can
result in lower gross margins if the Company lowers prices in
order to liquidate excess inventories. Excess inventories can
also drive increased interest costs. The Company’s
business, results of operations and financial position could be
adversely affected if the Company is unable to effectively
manage its inventory.
Increases or changes in duties, quotas, tariffs and other
trade restrictions could adversely impact the Company’s
sales and profitability.
All of the Company’s products manufactured overseas and
imported into the U.S., the European Union and other countries
are subject to customs duties collected by customs authorities.
Customs information submitted by the Company is routinely
subject to review by customs authorities. Additional
U.S. or foreign customs duties, quotas, tariffs,
anti-dumping duties, safeguard measures, cargo restrictions to
prevent terrorism or other trade restrictions may be imposed on
the importation of the Company’s products in the future.
The imposition of such costs or restrictions in foreign
countries where the Company operates, as well as in countries
where the Company’s
third-party
distributors and licensees operate, could result in increases in
the cost of the Company’s products generally and could
adversely affect the sales and profitability of the Company.
In December 2009, the European Union approved a
15-month
extension of anti-dumping duties on specific types of leather
upper footwear originating in China and Vietnam and imported
into member states of the European Union. Because the Company
sources a substantial portion of its products from suppliers
located in China and Vietnam, these anti-dumping duties
negatively affected the Company’s sales and gross margin in
the European Union. The European Union announced in January 2011
that the anti-dumping duties described above will be removed on
March 31, 2011.
Foreign currency exchange rate fluctuations could adversely
impact the Company’s business.
Foreign currency fluctuations affect the Company’s reported
revenue and profitability. In addition, because the Company may
employ hedging strategies over time, changes in currency
exchange rates may impact the Company’s financial results
positively or negatively in one period and not another, which
may make it difficult to compare the Company’s operating
results from different periods. Currency exchange rate
fluctuations may also adversely impact third parties who
manufacture the Company’s products by making their
purchases of raw materials or other production costs more
expensive and more difficult to finance, thereby raising prices
for the Company, its distributors and licensees. For a more
detailed discussion of risk relating to foreign currency
fluctuation, see Item 7A, Quantitative and Qualitative
Disclosures About Market Risk.
Significant raw material shortages, supplier capacity
constraints, supplier production disruptions, supplier quality
issues or price increases could increase the Company’s
operating costs and adversely impact the competitive position of
the Company’s products.
The Company currently sources most of its products from
third-party manufacturers in foreign countries, predominantly
China. As is common in the industry, the Company does not have
long-term contracts with its third-party suppliers. There can be
no assurance that the Company will not experience difficulties
with such suppliers, including reduction in the availability of
production capacity, failure to meet production deadlines or
increases in manufacturing costs. The Company’s future
results will depend partly on its ability to maintain positive
working relationships with third-party suppliers.
Foreign manufacturing is subject to a number of risks, including
work stoppages, transportation delays and interruptions,
political instability, foreign currency fluctuations, changing
economic conditions, expropriation, nationalization, the
imposition of tariffs, import and export controls and other
non-tariff barriers and changes in governmental policies.
Various factors could significantly interfere with the
Company’s ability to source its products, including adverse
developments in trade or political relations with China or other
countries where the Company sources its products, or a shift in
China’s manufacturing capacity away from footwear and
apparel to other industries. Any of these events could have an
adverse effect on the Company’s business, results of
operations and financial position and in particular on the
Company’s ability to meet customer demands and produce its
products in a cost-effective manner.
The Company’s ability to competitively price its products
depends on the cost of components, services, labor, equipment
and raw materials, including leather and materials used in the
production of footwear outsoles. The cost of services and
materials is subject to change based on availability and market
conditions that are difficult to predict. Various conditions,
such as diseases affecting the availability of leather, affect
the cost of the footwear marketed by the Company. In addition,
fuel prices and numerous other factors, such as the possibility
of service interruptions at shipping and receiving ports, affect
the Company’s shipping costs. Increases in cost for
services and materials used in production could have a negative
impact on the Company’s results of operations and financial
position.
The Company purchases raw pigskins for its leathers operations
from a single domestic source pursuant to
short-term
contracts. Although this source has been a reliable and
consistent supplier for over 30 years, there are no
assurances that it will continue as a supplier. Failure of this
source to continue to supply the Company with raw pigskin or to
supply the Company with raw pigskin on less favorable terms
could increase the Company’s cost of raw materials for its
leather business and, as a result, have a negative impact on the
Company’s results of operations and financial position.
A significant reduction in customer purchases of the
Company’s products or failure of customers to pay for the
Company’s products in a timely manner could adversely
affect the Company’s business.
The Company’s financial success is directly related to its
customers continuing to purchase its products. The Company does
not typically have long-term contracts with its customers. Sales
to the Company’s customers are generally on an
order-by-order
basis and are subject to rights of cancellation and rescheduling
by the customers.
Failure to fill customers’ orders in a timely manner could
harm the Company’s relationships with its customers.
Furthermore, if any of the Company’s major customers
experience a significant downturn in its business, or fail to
remain committed to the Company’s products or brands, they
may reduce or discontinue purchases from the Company, which
could have an adverse effect on the Company’s results of
operations and financial position.
The Company sells its products to customers and extends credit
based on an evaluation of each customer’s financial
condition. The financial difficulties of a customer could cause
the Company to stop doing business with that customer or reduce
its business with that customer. The Company’s inability to
collect from its customers or a cessation or reduction of sales
to certain customers because of credit concerns could have an
adverse effect on the Company’s business, results of
operations and financial position.
The general trend toward consolidation in retail and specialty
retail could lead to fewer customers, customers seeking more
favorable terms of purchase from the Company and could lead to 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 Internet commerce and the trend
toward the sale of private label products by major retailers,
could have an adverse effect on the Company’s results of
operations and financial position.
The Company has been awarded a number of U.S. Department of
Defense contracts that include future purchase options for
Bates®
footwear. Failure by the Department of Defense to exercise these
purchase options or the failure of the Company to secure future
U.S. Department of Defense contracts could have an adverse
effect on the Company’s results of operations and financial
position.
Changes in the credit markets could adversely affect the
Company’s financial success.
Changes in credit markets could adversely impact the
Company’s future results of operations and financial
position. If the Company’s third-party distributors,
suppliers and retailers are not able to obtain financing on
favorable terms, or at all, they may delay or cancel orders for
the Company’s products, or fail to meet their obligations
to the Company in a timely manner, either of which could
adversely impact the Company’s sales, cash flow and
operating results. In addition, any lack of available credit
and/or the
increased cost of credit may significantly impair the
Company’s ability to obtain additional credit to finance
future expansion plans, or refinance existing credit, on
favorable terms, or at all.
Unfavorable findings resulting from a government audit could
subject the Company to a variety of penalties and sanctions, and
could negatively impact the Company’s future revenues.
The federal government has the right to audit the Company’s
performance under its government contracts. If a government
audit uncovers improper or illegal activities, the Company could
be subject to civil and criminal penalties and administrative
sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines, and suspension or
debarment from doing business with U.S. federal government
agencies. The Company could also suffer serious harm to its
reputation if the government alleges that the Company acted in
an improper or illegal manner, whether or not any such
allegations have merit. If, as the result of an audit or for any
other reason, the Company is suspended or barred from
contracting with the federal government generally, or any
specific agency, if the Company’s reputation or
relationship with government agencies is impaired, or if the
government otherwise ceases doing business with the Company or
significantly decreases the amount of business it does with the
Company, the Company’s revenue and profitability could
decrease. The Company is also subject to customs and other
audits in various jurisdictions where it operates. Negative
audit findings could have an adverse effect on the
Company’s results of operations and financial position.
Failure of the Company’s international 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 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, and it
may be difficult and costly to locate an acceptable substitute
distributor or licensee. If a change in licensee or distributor
becomes necessary, the Company may experience increased costs,
as well as substantial disruption and a resulting loss of sales
and brand equity in the market where such licensee or
distributor operates.
The Company’s reputation and competitive position are
dependent on its third-party manufacturers, distributors,
licensees and others complying with applicable laws and the
Company’s ethical standards.
The Company requires its independent contract manufacturers,
distributors, licensees and others with which it does business
to comply with the Company’s ethical standards and
applicable laws relating to working conditions and other
matters. If a party with whom the Company does business is found
to have violated the Company’s ethical standards or
applicable laws, the Company could receive negative publicity
that could damage its reputation and negatively affect the value
of its brands.
Global political and economic uncertainty could adversely
impact the Company’s business.
Concerns regarding acts of terrorism and international conflict
have created significant global economic and political
uncertainties that may have material and adverse effects on
consumer demand, acceptance of U.S. brands in international
markets, foreign sourcing of products, shipping and
transportation, product imports and exports and the sale of
products in foreign markets, any of which could adversely affect
the Company’s ability to source, manufacture, distribute
and sell its products. The Company is subject to risks of doing
business in developing countries and economically volatile
areas. These risks include social, political and economic
instability; nationalization of the Company’s assets and
operations in a developing country by local government
authorities; slower payment of invoices; and restrictions on the
Company’s ability to repatriate foreign currency. In
addition, commercial laws in these areas may not be
well-developed or consistently administered, and new 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.
Unsuccessful efforts by the Company to establish and protect
its intellectual property could adversely affect the value of
its brands.
The Company invests significant resources to develop and protect
its intellectual property, and believes that its trademarks and
other intellectual property rights are important to its future
success. The Company’s ability to remain competitive is
dependent upon its continued ability to secure and protect
trademarks, patents and other intellectual property rights in
the United States and internationally for all of its 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 as do U.S. laws. The Company’s
business could be significantly harmed if it is not able to
protect its intellectual property, or if a court found that the
Company was infringing on other persons’ intellectual
property rights. Any intellectual property lawsuits or
threatened lawsuits in which the Company is involved, either as
a plaintiff or as a defendant, could cost the Company a
significant amount of time and money and distract
management’s attention from operating the Company’s
business. In addition, if the Company does not prevail on any
intellectual property claims, 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. Expiration or early
termination of any of these license agreements by the licensor
could have a material adverse effect on the Company’s
business, results of operations and financial position.
The Company periodically discovers products that are counterfeit
reproductions of its products or that otherwise infringe on its
intellectual property rights. The Company has not always been
able to stop production and sales of counterfeit products and
infringement of the Company’s intellectual property rights.
The actions the Company takes to establish and protect
trademarks, patents and other intellectual property rights both
inside and outside of the United States may not be adequate to
prevent imitation of its products by others. If the Company is
unsuccessful in challenging a party’s products on the basis
of infringement of the Company’s intellectual property
rights, continued sales of these products could adversely affect
the Company’s sales, devalue its brands and result in the
shift of consumer preference away from the Company’s
products.
The Company’s inability to attract and retain executive
managers and other key employees, or the loss of one or more
executive managers or other key employees, could adversely
affect the Company’s business.
The Company depends on its executive management and other key
employees. In the footwear, apparel and consumer-direct
industries, competition for qualified employees is intense, and
the Company’s failure to identify, attract or retain
executive managers or other key employees could adversely affect
its business. The Company must offer and maintain competitive
compensation packages to effectively recruit and retain such
individuals. Further, the loss of one or more executive managers
or other key employees, or the Company’s failure to
successfully implement succession planning, could adversely
affect the Company, its results of operations or financial
position.
Inflationary and other pressures may lead to higher
employment and pension costs for the Company.
General inflationary pressures, changes in employment laws and
regulations, and other factors could increase the Company’s
overall employment costs. The Company’s employment costs
include costs relating to health care benefits and benefits
under the Company’s retirement plans, including a
U.S.-based
defined benefit plan. 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 used to determine the
present value of pension obligations, a change in method or
timing of meeting pension funding obligations and the rate of
health care cost inflation. Increases in the Company’s
overall employment and pension costs could have an adverse
effect on the Company’s business, results of operations and
financial position.
Disruption of the Company’s technology systems could
adversely affect the Company’s business.
The Company’s technology systems are critical to the
operations of its business. Any interruption, 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.
The Company faces risks associated with its growth strategy
and acquiring or disposing of businesses.
The Company may make strategic acquisitions in the future, and
the Company cannot provide assurance that it will be able to
successfully integrate the operations of these newly-acquired
businesses into the Company’s operations. Acquisitions
involve numerous risks, including risks inherent in entering new
markets in which the Company may not have prior experience;
potential loss of significant customers or key personnel of the
acquired business; managing geographically-remote operations;
and potential diversion of management’s attention from
other aspects of the Company’s business operations.
Acquisitions may also result in incurrence of debt, dilutive
issuances of the Company’s equity securities and write-offs
of goodwill and substantial amortization expenses of other
intangible assets. The failure to integrate newly-acquired
businesses or the inability to make suitable strategic
acquisitions in the future could have an adverse effect on the
Company’s 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 its business and
the availability of equity and debt financing. The Company
cannot provide assurance that its operations will generate
positive cash flow or that it will be able to obtain equity or
debt financing on acceptable terms or at all. Further, the
Company cannot provide assurance that it will be able to finance
any expansion plans.
Expanding the Company’s brands into new markets may be
difficult and costly, and unsuccessful efforts to do so may
adversely affect the Company’s brands or business.
As part of its growth strategy, the Company seeks to enhance the
positioning of its brands, to extend its brands into
complementary product categories, to expand geographically, to
expand its owned consumer-direct operations and to improve
operational performance. There can be no assurance that the
Company will be able to successfully implement any or all of
these growth strategies, which could have an adverse effect on
the Company’s results of operations and financial position.
Changes in government regulation may increase the costs of
compliance.
The Company’s business is affected by changes in government
and regulatory policies in the United States 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.
The disruption, expense, and potential liability associated
with existing and future litigation against the Company could
adversely affect the Company’s reputation, financial
position or results of operations.
The Company is a defendant from time to time in lawsuits and
regulatory actions relating to its business. Due to the inherent
uncertainties of litigation and regulatory proceedings, the
Company cannot accurately predict the ultimate outcome of any
such proceedings. An unfavorable outcome could have an adverse
impact on the Company’s business, financial position and
results of operations. In addition, regardless of the outcome of
any litigation or regulatory proceedings, such proceedings are
expensive and may require that the Company devote substantial
resources and executive time to defend the Company.
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 Company’s certificate of incorporation
and bylaws, as well as provisions of Delaware law, could
discourage, delay or prevent a merger, acquisition or other
change in control of the Company. These provisions are intended
to protect stockholders’ interests by providing the Board
of Directors a means to attempt to deny coercive takeover
attempts or to negotiate with a potential acquirer in order to
obtain more favorable terms. Such provisions include a board of
directors that is classified so that only one-third of directors
stand for election each year. These provisions could also
discourage proxy contests and make it more difficult for
stockholders to elect directors and take other corporate actions.
There are risks, including stock market volatility, inherent
in owning the Company’s common stock.
The market price and volume of the Company’s common stock
have been, and may continue to be, subject to significant
fluctuations. These fluctuations may arise from general stock
market conditions, the impact of risk factors described in this
Item 1A on the Company’s financial condition and
results of operations, a change in sentiment in the market
regarding the Company’s business prospects or from other
factors, many of which may be outside the Company’s
control. Changes in the amounts and frequency of share
repurchases or dividends could adversely affect the value of the
Company’s common stock.
None.
The Company operates its domestic administration, sales and
marketing operations primarily from an owned facility of
approximately 225,000 square feet in Rockford, Michigan.
The Company’s manufacturing operations are conducted
primarily at a combination of leased and owned facilities in
Michigan and the Dominican Republic. The Company operates its
U.S. distribution operations primarily through an owned
distribution center in Rockford, Michigan, of approximately
305,000 square feet, a leased distribution center in Cedar
Springs, Michigan, of approximately 356,000 square feet and
a leased distribution center in Howard City, Michigan, of
approximately 460,000 square feet.
The Company also leases and owns various other offices and
distribution centers to meet its operational requirements. In
addition, the Company operates retail stores through leases with
various third-party landlords. The Company conducts
international operations in Canada, the United Kingdom, China,
Hong Kong and Europe through leased distribution centers,
offices
and/or
showrooms. The Company believes that its current facilities are
suitable and adequate for its current needs.
The Company is involved in litigation and various legal matters
arising in the normal course of business, including certain
environmental compliance activities. The Company has considered
facts related to legal and regulatory matters and opinions of
counsel handling these matters, and does not believe the
ultimate resolution of such proceedings will have a material
adverse effect on the Company’s financial position, results
of operations, or cash flows.
The following table lists the names and ages of the Executive
Officers of the Company and the positions presently held with
the Company. The information provided below the table lists the
business experience of each such Executive Officer for at least
the past five years. All Executive Officers serve at the
pleasure of the Board of Directors of the Company, or if not
appointed by the Board of Directors, they serve at the pleasure
of management.
Kenneth A. Grady
Donald T. Grimes
Robin J. Kleinjans-McKee
Blake W. Krueger
Pamela L. Linton
Michael F. McBreen
Michael D. Stornant
James D. Zwiers
Kenneth A. Grady has served the Company as General Counsel and
Secretary since October 2006. During 2006, he was President and
shareholder of the law firm K.A. Grady PC. During 2005, he
served as Vice President, General Counsel and Secretary of PC
Connection, Inc., a direct marketer of information technology
products and solutions. From 2004 to 2005, Mr. Grady served
as Executive Vice President of Administration, General Counsel
and Secretary of KB Toys, Inc., a specialty toy retailer. From
2001 to 2004, he served as Vice President, General Counsel and
Secretary of KB Toys, Inc.
Donald T. Grimes has served the Company as Senior Vice
President, Chief Financial Officer and Treasurer since May 2008.
From 2007 to 2008, he was the Executive Vice President and Chief
Financial Officer for Keystone Automotive Operations, Inc., a
distributor of automotive accessories and equipment. Prior to
Keystone, Mr. Grimes held a series of senior corporate and
divisional finance roles at Brown-Forman Corporation, a
manufacturer and marketer of premium wines and spirits. During
his employment at Brown-Forman, Mr. Grimes was Vice
President, Director of Beverage Finance from 2006 to 2007; Vice
President, Director of Corporate Planning and Analysis from 2003
to 2006; and Senior Vice President, Chief Financial Officer of
Brown-Forman Spirits America from 1999 to 2003.
Robin J. Kleinjans-McKee has served the Company as Corporate
Controller since February 2009. From 2006 to 2009, she was the
Company’s Director of Financial Reporting. From 2004 to
2006, Ms. Kleinjans-McKee served as Assurance Senior
Manager at BDO Seidman, LLP, a professional services firm. From
1997 to 2004, Ms. Kleinjans-McKee served in various audit
positions at BDO Seidman, LLP.
Blake W. Krueger has served the Company as Chairman since
January 2010 and as Chief Executive Officer and President since
April 2007. From October 2005 to April 2007, he served as Chief
Operating Officer and President. From August 2004 to October
2005, he served as Executive Vice President and Secretary of the
Company and President of the Heritage Brands Group. From
November 2003 to August 2004, he served the Company as Executive
Vice President, Secretary, and President of Caterpillar
Footwear. From April 1996 to November 2003, he served the
Company as Executive Vice President, General Counsel and
Secretary. From 1993 to April 1996, he served as General Counsel
and Secretary. From 1985 to 1996, he was a partner with the law
firm of Warner Norcross & Judd LLP.
Pamela L. Linton has served the Company as Senior Vice
President, Global Human Resources since December 2007. From 2005
to 2007, she was an independent consultant. From 2001 to 2005,
she was Senior Vice President, Global Human Resources of
American Greetings Corporation, a greeting card and gift wrap
company.
Michael F. McBreen has served the Company as President, Global
Operations Group of Wolverine since June 2008. From 2007 to
2008, he was Vice President, Supply Chain & Logistics
for Furniture Brands International, a home furnishings company.
Prior to Furniture Brands International, Mr. McBreen held a
series of senior supply chain roles with Nike, Inc., a marketer
of athletic footwear and apparel. During his employment at Nike,
Mr. McBreen was
Director, Global Apparel Operations from 2004 to 2007; Director,
Global Apparel Operations & Corporate Responsibility
from 2002 to 2004; and Director, Global Supply Chain Operations
from 2000 to 2002.
Michael D. Stornant has served the Company as Vice President,
Corporate Planning and Analysis since February 2009. He served
the Company as Corporate Controller from May 2008 until February
2009. From 2007 to 2008, he served as Senior Vice President of
Owned Operations for the Global Operations Group. From 2006 to
2007, he was Wolverine’s Vice President of Finance for the
Global Operations Group. From 2003 to 2006, he served the
Company as the Director of Internal Audit. From 1996 to 2003, he
held various finance-related positions at the Company.
James D. Zwiers has served the Company as Senior Vice President
and President, Outdoor Group since March 2009. From January 2008
until March 2009, he served as Senior Vice President of the
Company. From October 2006 to December 2007, he served as
President of the Company’s Hush Puppies U.S. Division.
From October 2005 to October 2006, he served as the
Company’s General Counsel and Secretary. From December 2003
to October 2005, he served as General Counsel and Assistant
Secretary. From January 1998 to December 2003, he served the
Company as Associate General Counsel and Assistant Secretary.
From 1995 to 1998, he was an attorney with the law firm of
Warner Norcross & Judd LLP.
The Company’s common stock is traded on the New York Stock
Exchange under the symbol “WWW.” The following table
shows the high and low stock prices on the New York Stock
Exchange and dividends declared by calendar quarter for 2010 and
2009. The number of stockholders of record on February 25,
2011, was 1,612.
First quarter
Second quarter
Third quarter
Fourth quarter
A quarterly dividend of $0.12 per share was declared during the
first quarter of fiscal 2011. The Company currently expects that
comparable cash dividends will be paid in future quarters in
2011.
The Company’s credit agreement imposes certain restrictions
on the Company’s ability to pay cash dividends. As long as
no default under the credit agreement exists or would be caused
by the payment of the dividend, the Company may pay cash
dividends (i) in an aggregate amount not to exceed
$80 million per fiscal year and (ii) in an aggregate
amount greater than $80 million per fiscal year if the
Company maintains a prescribed leverage ratio.
See Item 12 for information with respect to the
Company’s equity compensation plans.
Stock
Performance Graph
The following graph compares the five year cumulative total
stockholder return on Wolverine 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.
Wolverine is part of the Standard & Poor’s Small
Cap 600 Index and the Standard & Poor’s 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.
The following table provides information regarding the
Company’s purchases of its own common stock during the
fourth quarter of fiscal 2010:
Issuer
Purchases of Equity Securities
Period 1 (September 12, 2010 to October 9, 2010)
Common Stock Repurchase
Program(1)
Employee
Transactions(2)
Period 2 (October 10, 2010 to November 6, 2010)
Period 3 (November 7, 2010 to December 4, 2010)
Period 4 (December 5, 2010 to January 1, 2011)
Total for Fourth Quarter ended January 1, 2011
Five-Year Operating and Financial Summary
(1)
(Thousands of Dollars, Except Per Share Data)
Summary of Operations
Revenue
Net earnings
Per share of common stock:
Basic net
earnings(2)(3)
Diluted net
earnings(2)(3)
Cash dividends declared
Financial Position at Year End
Total assets
Long-term debt
Notes to
Five-Year Operating and Financial Summary
OVERVIEW
BUSINESS OVERVIEW
Wolverine World Wide, Inc. (the “Company”) is a
leading global designer, manufacturer and marketer of branded
footwear, apparel and accessories. The Company’s stated
mission is to “Excite Consumers Around the World with
Innovative Footwear and Apparel that Bring Style to
Purpose.” The Company pursues this mission by offering
innovative products and compelling brand propositions,
delivering supply chain excellence, complementing its footwear
brands with strong apparel and accessories offerings and
building a more substantial global consumer-direct footprint.
The Company’s portfolio consists of 12 brands that were
marketed in approximately 190 countries and territories as of
January 1, 2011. This diverse portfolio and broad
geographic reach position the Company for robust organic growth.
The Company controls distribution of its brands into the retail
channel via subsidiary operations in the United States, Canada,
the United Kingdom and certain other countries in continental
Europe. In other markets, the Company relies on a network of
third-party distributors and licensees to market its brands. The
Company also owned and operated 88
brick-and-mortar
retail stores in the United States, Canada and the United
Kingdom and operated 38 consumer-direct internet sites at the
end of fiscal 2010.
2010
FINANCIAL OVERVIEW
2010
DEVELOPMENTS
Strategic
Restructuring Plan
On January 7, 2009, the Board of Directors of the Company
approved a strategic restructuring plan designed to create
significant operating efficiencies, improve the Company’s
supply chain and create a stronger global platform. On
October 7, 2009, the Company announced that two initiatives
in its restructuring plan had been expanded to enable the
consolidation of two domestic manufacturing facilities into one
and to finalize realignment of certain product creation
organizations. The strategic restructuring plan and all actions
under the plan, except for certain cash payments, were completed
as of June 19, 2010.
OUTLOOK
FOR 2011
Fiscal year 2011 revenue is expected to increase based on
continued positive momentum across all brands. Based on the
favorable outlook for the business, the Company anticipates
revenue growth in the high single digits to low teens.
The Company expects the fiscal 2011 gross margin to be
similar to the fiscal 2010 gross margin of 39.5%, as higher
product costs are expected to be offset by strategic price
increases and anticipated favorable product mix. The Company
anticipates modest operating expense leverage, a full year
effective tax rate of 29.0% and fully diluted earnings per share
growth in the high single digits to mid teens.
The following is a discussion of the Company’s results of
operations and liquidity and capital resources. This section
should be read in conjunction with the Company’s
consolidated financial statements and related notes included
elsewhere in this Annual Report.
RESULTS
OF OPERATIONS – FISCAL 2010 COMPARED TO FISCAL
2009
FINANCIAL
SUMMARY – 2010 VERSUS 2009
Revenue
Branded footwear, apparel and licensing
Other business units
Total Revenue
Gross Profit
Total Gross Profit
Selling, general and administrative expenses
Restructuring and other transition costs
Total Operating Expenses
Interest expense – net
Other (income) – net
Earnings before income taxes
Net Earnings
Diluted earnings per share
The Company has one reportable segment that is engaged in
designing, manufacturing, sourcing, marketing, licensing and
distributing branded footwear, apparel and accessories. In
fiscal 2010 and fiscal 2009, this reportable segment was
organized into four primary wholesale operating segments:
The Company’s other operating segments, which do not
collectively comprise a separate reportable segment, consisted
of: Wolverine Retail, the Company’s consumer-direct
business; Wolverine Leathers, which markets pigskin leather; and
Wolverine Procurement, which includes pigskin procurement
operations.
The following is supplemental information on total revenue:
TOTAL
REVENUE
(Millions of Dollars)
Outdoor Group
Wolverine Footwear Group
Heritage Brands Group
Hush Puppies Group
Other
Total branded footwear, apparel
and licensing revenue
and licensing revenue
Other business units
Total Revenue
REVENUE
Revenue for 2010 increased $147.4 million from 2009, to
$1.249 billion. Strong organic growth in unit volume and
higher average selling price for the branded footwear, apparel
and licensing operations resulted in $122.1 million of the
increase with every significant region delivering double digit
revenue growth in 2010 compared to 2009. Changes in foreign
exchange rates increased reported revenue by $4.3 million.
Revenue from the other business units increased
$21.0 million, led by strong organic growth in the
consumer-direct business and strong demand for proprietary
leather from customers of the Wolverine Leathers business.
International revenue represented 38.4% of total revenue in 2010
compared to 37.3% in 2009.
The Outdoor Group generated revenue of $467.6 million in
2010, a $51.4 million increase from 2009. The
Merrell®
brand’s revenue increased at a rate in the low teens
compared to 2009, primarily as a result of increased market
penetration in every geography, category and channel and
successful at-once programs.
Patagonia®
Footwear’s revenue increased at a rate in the mid thirties
in 2010 compared to 2009, due to continued strong demand from
key outdoor retailers. The
Chaco®
brand grew at a rate in the high teens compared to 2009, due
primarily to the brand’s expanded distribution in the
U.S. and the introduction of closed-toe product designed to
evolve the brand into a four-season offering.
The Wolverine Footwear Group recorded revenue of
$274.9 million in 2010, a $41.7 million increase from
2009. Revenue for the
Wolverine®
brand increased at a rate in the low twenties due primarily to
continued growth in the brand’s core work business as well
as significant growth in the rugged casual business. The
Bates®
footwear business
grew revenue at a high single digit rate as it began shipping
military boots under a major contract awarded in the third
quarter of 2010.
HyTest®’s
revenue increased at a rate in the low thirties due to a rebound
in the safety footwear market.
The Heritage Brands Group generated revenue of
$222.3 million during 2010, a $24.0 million increase
over 2009.
Cat®
Footwear’s revenue increased at a rate in the mid teens
compared to 2009, reflecting stronger sales in both the
U.S. and European markets and an increase in sales to
premium retailers.
Harley-Davidson®
Footwear revenue increased at a mid single digit rate compared
to 2009 due primarily to organic growth in the European market.
The
Sebago®
brand experienced an increase in revenue at a rate in the mid
teens for 2010 as a result of solid organic growth in the
European and third-party distributor markets, driven by
investments designed to increase brand awareness.
The Hush Puppies Group recorded revenue of $140.3 million
in 2010, an $8.7 million increase from 2009. Hush
Puppies®
revenue increased at a low single digit rate as growth in the
United States and the third-party licensing business was
partially offset by declines in the Canadian and European
markets. The Soft
Style®
brand grew its revenue at a mid single digit rate as a result of
growth in the department store channel, independent retailers
and
e-commerce.
The
Cushe®
brand more than doubled compared to 2009, driven by the
excellent placement the brand has secured in specialty, outdoor
and surf retail venues along with the addition of more
international distributors and independent retailers.
Within the Company’s other business units, Wolverine Retail
reported a sales increase in the mid teens compared to 2009 as a
result of growth from the Company’s
e-commerce
channel and mid single-digit growth in comparable store sales
from Company-owned stores. Wolverine Retail operated 88 retail
stores worldwide at the end of both 2010 and 2009, with 7 new
store openings in 2010 offset by the Company’s decision to
close 7 underperforming locations in order to improve financial
results. The Wolverine Leathers business reported a revenue
increase at a rate in the low thirties, primarily due to strong
demand for Wolverine’s proprietary pigskin leather from
third-party customers.
GROSS MARGIN
Gross margin in 2010 of 39.5% was 30 basis points higher
than the prior year. The increase primarily resulted from
restructuring and other transition costs included in the cost of
sales of $1.4 million compared to $5.9 million in the
prior year, positive shift in product mix and selected selling
price increases, which were partially offset by the
year-end
LIFO adjustment and higher
year-over-year
product and freight costs.
OPERATING
EXPENSES
Operating expenses of $350.3 million in 2010 increased
$4.2 million from $346.1 million in 2009. The increase
was related primarily to increases in advertising and marketing
expenses designed to increase brand awareness; increases in
operating expenses that vary with revenue, such as selling
commissions and distribution costs; and higher compensation
costs. These increases were partially offset by continued
discipline in lowering general and administrative expenses and a
$26.9 million dollar reduction in restructuring and other
transition costs.
INTEREST,
OTHER AND TAXES
The increase in net interest expense reflected increased
facility fees under the new credit agreement and increased
amortization of closing costs offset by a reduction in revolver
borrowings in 2010.
The increase in other income is primarily related to the sale of
Wolverine Procurement assets in the fourth quarter of 2010,
which resulted in a $1.1 million gain and the change in
realized gains or losses on foreign denominated assets and
liabilities.
The Company’s full year effective tax rate in fiscal year
2010 was 27.1%, compared to 27.8% in fiscal year 2009. The lower
effective tax rate reflects benefits from the favorable
settlement of a foreign tax audit and a higher percentage of the
Company’s earnings being attributable to foreign
jurisdictions where tax rates are lower than in the U.S. or
nontaxable based on specific tax rulings and legislation.
NET
EARNINGS AND EARNINGS PER SHARE
As a result of the revenue, gross margin and expense changes
discussed above, the Company had net earnings of
$104.5 million in 2010 compared to $61.9 million in
2009, an increase of $42.6 million.
Diluted net earnings per share increased 70.2% in 2010 to $2.11
from $1.24 in 2009. The increase was primarily attributable to
increased revenues, improved gross margin and lower
restructuring and other transition costs. The Company
repurchased approximately 1,795,000 shares of common stock
in 2010 for approximately $51.2 million and repurchased
approximately 406,000 shares in 2009 for approximately
$5.6 million, both of which lowered the average shares
outstanding.
Inflation did not have a significant impact on revenue or net
earnings.
RESULTS
OF OPERATIONS – FISCAL 2009 COMPARED TO FISCAL
2008
FINANCIAL
SUMMARY – 2009 VERSUS 2008
Revenue
Branded footwear, apparel and licensing
Gross Profit
Total Gross Profit
Selling, general and administrative expenses
Restructuring and other transition costs
Total Operating Expenses
Interest expense – net
Other (income) – net
Earnings before income taxes
Net Earnings
Diluted earnings per share
(Millions of Dollars)
Total branded footwear, apparel and licensing revenue
Revenue for 2009 decreased $119.5 million from 2008, to
$1,101.1 million. Declines in unit volume for the branded
footwear, apparel and licensing operations were primarily due to
tough market conditions brought about by the global recession.
These declines were only partially offset by price increases for
selected brands, causing revenue to decrease $76.7 million.
Changes in foreign exchange rates decreased revenue by
$38.2 million. Revenue from the other business units
decreased $4.6 million. International revenue represented
37.3% of total reported revenue in 2009 compared to 40.2% in
2008, with the decline resulting primarily from the stronger
U.S. dollar.
The Outdoor Group generated revenue of $416.2 million for
2009, a $12.2 million decrease from 2008. The
Merrell®
brand’s revenue decreased at a mid single-digit rate over
the prior year, primarily as a result of the strengthening of
the U.S. dollar and tough economic conditions in the
brand’s international markets.
Patagonia®
Footwear’s revenue decreased at a rate in the low
single-digits in 2009 compared to 2008, due primarily to tough
economic conditions. The addition and successful integration of
the
Chaco®
brand early in the fiscal year contributed to the group’s
overall revenue performance in 2009.
The Wolverine Footwear Group recorded revenue of
$233.2 million in 2009, a $28.7 million decrease from
2008. Revenue for the
Wolverine®
brand declined at a high single-digit rate due primarily to
negative economic conditions in the U.S. work sector. The
Bates®
uniform footwear business realized a decrease in revenue at a
rate in the low teens, due primarily to planned reduction in
purchases by the U.S. Department of Defense.
HyTest®’s
revenue declined at a rate in the low thirties due to factory
closures and high unemployment rates among the brand’s
target consumers.
The Heritage Brands Group recorded revenue of
$198.3 million during 2009, a $44.0 million decrease
over 2008.
Cat®
Footwear’s revenue decreased at a rate in the low twenties
compared to 2008, reflecting challenging economic conditions in
many of the brand’s major markets and the impact of the
stronger U.S. dollar.
Harley-Davidson®
Footwear revenue decreased at rate in the mid teens due
primarily to declines in the dealer and retail market. The
Sebago®
brand experienced a decline in revenue at a rate in the low
teens for 2009 as a result of tough economic conditions in many
of the brand’s most important markets and the stronger
U.S. dollar.
The Hush Puppies Group recorded revenue of $131.6 million
in 2009, a $29.3 million decrease from 2008.
Hush Puppies®
revenue decreased at a rate in the high teens due primarily to
continued retail consolidation in Europe caused by weaker
consumer spending and the strengthening of the U.S. dollar
compared to 2008. The Soft
Style®
brand experienced a decline in revenue at a rate in the mid
thirties as a result of a weak retail environment and
production delays at third-party factories. Revenue generated by
the
Cushe®
brand, acquired in early fiscal 2009, partially offset these
revenue declines.
Within the Company’s other business units, Wolverine Retail
reported a high single-digit sales increase versus 2008 as a
result of growth from the Company’s
e-commerce
channel and low single-digit growth in comparable store sales
from Company-owned stores. Wolverine Retail operated 88 retail
stores worldwide at the end of 2009 compared to 90 at the end of
2008, as 9 new store openings were more than offset by the
Company’s decision to close 11 underperforming locations in
order to improve financial results. The Wolverine Leathers
business reported a revenue decline at a rate in the mid
twenties for 2009, primarily due to a decline in demand for its
proprietary products and a significant decline in the market
price for finished leather.
GROSS
MARGIN
Gross margin in 2009 of 39.2% was 60 basis points lower
than the prior year. Restructuring and other transition costs of
$5.9 million included in cost of goods sold in 2009
accounted for 50 basis points of the decline, with the
remainder of the decrease resulting from the negative impact of
foreign exchange, increases in product costs and a higher mix of
lower margin product sales in 2009.
Operating expenses of $346.1 million in 2009 increased
$0.9 million from $345.2 million in 2008. The increase
was related to restructuring and other transition costs of
$29.7 million, operating expenses associated with recently
acquired brands of $6.9 million and increased pension
expense of $8.8 million. These increases were offset by the
favorable impact of foreign exchange of $8.6 million, lower
general and administrative costs as a result of the
Company’s restructuring and cost-savings initiatives and
decreases in certain operating expenses that vary with revenue,
such as selling commissions and distribution costs.
The decrease in net interest expense reflected lower outstanding
debt as a result of the repayment in full of the Company’s
senior notes during the fourth quarter of 2008 and lower average
balances outstanding on the Company’s revolving line of
credit during 2009.
The decrease in other income is related primarily to the change
in realized gains or losses on foreign denominated assets and
liabilities.
The Company’s full year effective tax rate for fiscal year
2009 was 27.8%, compared to 31.8% for fiscal year 2008. The
lower effective tax rate reflects benefits from the
Company’s strategic restructuring plan, the cumulative full
year benefits from various tax planning strategies related
primarily to the Company’s international operations and a
higher percentage of the Company’s earnings being
attributable to foreign jurisdictions where tax rates are lower
than in the U.S. or nontaxable based on specific tax
rulings and legislation.
As a result of the revenue, gross margin and expense changes
discussed above, the Company had net earnings of
$61.9 million in 2009 compared to $95.8 million in
2008, a decrease of $33.9 million.
Diluted net earnings per share decreased 34.7% in 2009 to $1.24
from $1.90 in 2008. The decrease was primarily attributable to
the global recession, restructuring and other transition costs,
increased pension expense and the negative effect of foreign
exchange rates.
LIQUIDITY
AND CAPITAL RESOURCES
Cash and cash equivalents
Accounts receivable
Inventories
Accounts payable
Current accrued liabilities
Interest-bearing debt
Cash provided by operating activities
Additions to property, plant and equipment
Depreciation and amortization
Cash and cash equivalents was $150.4 million as of
January 1, 2011 a decrease of $10.0 million versus the
balance at January 2, 2010, due primarily to incremental
investments in working capital and other operating assets to
support future growth, partially offset by improved revenue and
profit. Accounts receivable increased 20.0% compared to the end
of fiscal year 2009 on a 23.2% increase in fourth quarter
revenue. No single customer accounted for more than 10% of the
outstanding accounts receivable balance at January 1, 2011.
As expected, inventory levels at year end increased
substantially from 2009, up 32.0%. The increase is primarily due
to the strong outlook for the first half of 2011 and strategic
purchases ahead of announced cost increases on core product.
The increase in accounts payable as of January 1, 2011
compared to January 2, 2010 was primarily attributable to
the increase in inventory levels and the timing of cash payments
to vendors. The decrease in current accrued liabilities was due
primarily to decreased restructuring accruals and changes in
timing of payments, which resulted in a decrease in taxes
payable and liabilities related to foreign exchange contracts.
These decreases were partially offset by increases in incentive
compensation and advertising accruals.
The Company’s credit agreement with a bank syndicate
provides the Company with access to capital under a revolving
credit facility, including a swing-line facility and letter of
credit facility, in an initial aggregate amount of up to
$150.0 million. This amount is subject to increase up to a
maximum aggregate amount of $225.0 million under certain
circumstances. The revolving credit facility is used to support
working capital requirements and other business needs. There
were no amounts outstanding at January 1, 2011 under the
current revolving credit facility or at January 2, 2010
under the Company’s previous revolving credit facility. The
Company considers balances drawn on the revolving credit
facility, if any, to be short-term in nature. The Company was in
compliance with all debt covenant requirements at
January 1, 2011 under the current revolving credit facility
and at January 2, 2010 under the Company’s previous
revolving credit facility. Proceeds from the revolving credit
facility, along with cash flows from operations, are expected to
be sufficient to meet working capital needs for the foreseeable
future. Any excess cash flows from operating activities are
expected to be used to purchase property, plant and equipment,
pay down debt, fund internal and external growth initiatives,
pay dividends or repurchase the Company’s common stock.
Net cash provided by operating activities in fiscal 2010 was
$67.9 million versus $168.6 million in fiscal 2009, a
decrease of $100.7 million. Stronger earnings performance
and lower cash payments for restructuring were more than offset
by additional investments in working capital and the timing of
tax and operating expense payments.
The majority of capital expenditures for the year were for
information system enhancements, manufacturing equipment and
building improvements. The Company leases machinery, equipment
and certain warehouse, office and retail store space under
operating lease agreements that expire at various dates through
2023.
The Company’s Board of Directors approved a common stock
repurchase program on April 19, 2007. The program
authorized the repurchase of up to 7.0 million shares of
common stock over a
36-month
period beginning on the
effective date of the program. The Company repurchased
199,996 shares at an average price of $26.52 per share
during the first quarter of 2010, which exhausted the number of
shares authorized for repurchase under the program. The
Company’s Board of Directors approved a new common stock
repurchase program on February 11, 2010. This program
authorizes the repurchase of up to $200.0 million in common
stock over a four-year period. The Company repurchased
683,808 shares at an average price of $28.18 in the first
quarter of 2010, 752,643 shares at an average price of
$29.99 per share during the second quarter of 2010,
158,700 shares at an average price of $25.51 per share
during the third quarter and repurchased no shares during the
fourth quarter of 2010 under this new program. The primary
purpose of the stock repurchase programs is to increase
stockholder value. The Company intends to continue to repurchase
shares of its common stock under the new program from time to
time in open market or privately negotiated transactions,
depending upon market conditions and other factors.
April 19, 2007
February 11, 2010
The Company declared total dividends of $0.44 per share for
fiscal years 2010 and 2009. On February 11, 2011, the
Company declared a quarterly cash dividend of $0.12 per share of
common stock, to be paid on May 2, 2011 to shareholders of
record on April 1, 2011.
NEW
ACCOUNTING STANDARDS
In January 2010, the Financial Accounting Standards Board (FASB)
issued Accounting Standard Update (ASU)
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements
(“ASU
No. 2010-06”).
ASU
No. 2010-06
amends existing disclosure requirements under ASC 820 by
adding required disclosures about items transferring into and
out of Levels 1 and 2 in the fair value hierarchy; adding
separate disclosures about purchases, sales, issuances and
settlements relative to Level 3 measurements; and
clarifying the existing fair value disclosures about the level
of disaggregation. ASU
No. 2010-06
was effective for financial statements issued for interim and
annual periods beginning after December 15, 2009 (first
quarter 2010 for the Company), except for the requirement to
provide Level 3 activity, which is effective for fiscal
years beginning after December 15, 2010 (first quarter 2011
for the Company). The Company adopted the applicable disclosure
requirements of this ASU in the first quarter of 2010, and the
adoption did not affect the Company’s consolidated
financial position, results of operations or cash flows.
In February 2010, the FASB issued ASU
No. 2010-09,
Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements. This ASU, which was
effective immediately, removed the requirement for an SEC filer
to disclose a date through which subsequent events have been
evaluated. The Company adopted this standard in the first
quarter of 2010.
In December 2010, the FASB issued ASU
2010-28,
Goodwill and Other (Topic 350): When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts. ASU
2010-28
modifies Step 1 of the goodwill impairment test for reporting
units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a
goodwill impairment exists. In determining whether it is more
likely than not that goodwill impairment exists, an entity must
consider whether there are any adverse qualitative factors
indicating an impairment may exist. ASU
2010-28 is
effective for fiscal years, and interim periods within those
years, beginning December 15, 2010 (the first quarter of
fiscal 2011 for the Company). The adoption of this ASU is not
expected to have a material impact on the Company’s
goodwill impairment evaluation as the Company does not currently
have reporting units with zero or negative carrying amounts.
In December 2010, the FASB issued ASU
2010-29,
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business
Combinations. ASU
2010-29
requires that if a public entity presents comparative financial
statements, the entity should disclose revenue and earnings of
the
combined entity as though the business combination(s) that
occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only.
This ASU also expands the supplemental pro forma adjustments to
include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue
and earnings. ASU
2010-29 is
effective prospectively for business combinations for which the
acquisition date is on or after the first annual reporting
period beginning on or after December 15, 2010 (fiscal 2011
for the Company). The Company will provide the supplementary pro
forma information when completing future business combinations.
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 United States,
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. On an ongoing basis, management evaluates
these estimates. Estimates are based on historical experience
and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Historically, actual results have not been materially
different from the Company’s estimates. However, actual
results may differ materially from these estimates under
different assumptions or conditions.
The Company has identified the following critical accounting
policies used in determining estimates and assumptions in the
amounts reported. Management believes that an understanding of
these policies is important to an overall understanding of the
Company’s consolidated financial statements.
REVENUE
RECOGNITION
Revenue is recognized on the sale of products manufactured or
sourced by the Company when the related goods have been shipped,
legal title has passed to the customer and collectability is
reasonably assured. Revenue generated through programs with
licensees and distributors involving products bearing the
Company’s trademarks is recognized as earned according to
stated contractual terms upon either the purchase or shipment of
branded products by licensees and distributors.
The Company records provisions against gross revenue for
estimated returns and cash discounts in the period when the
related revenue is recorded. These estimates are based on
factors that include, but are not limited to, historical returns
experiences, historical discounts taken and analysis of credit
memorandum activity. The actual amount of customer returns or
allowances may differ from the Company’s estimates. The
Company records either an increase or decrease to gross sales in
the period in which it determines an adjustment to be
appropriate.
ACCOUNTS
RECEIVABLE
The Company maintains an allowance for uncollectible accounts
receivable for estimated losses resulting from its
customers’ inability to make required payments. Company
management evaluates the allowance for uncollectible accounts
receivable based on a review of current customer status and
historical collection experience. Historically, losses have been
within the Company’s expectations. Adjustments to these
estimates may be required if the financial condition of the
Company’s customers were to change. If the Company were to
determine that increases or decreases to the allowance for
uncollectible accounts were appropriate, the Company would
record either an increase or decrease to general and
administrative expenses in the period in which the Company made
such a determination. At January 1, 2011 and
January 2, 2010, management believed that it had provided
sufficient reserves to address future collection uncertainties.
INVENTORY
The Company values its inventory at the lower of cost or market.
Cost is determined by the
last-in,
first-out (“LIFO”) method for all domestic raw
materials and
work-in-process
inventories and certain domestic finished goods inventories.
Cost is determined using the
first-in,
first-out (“FIFO”) method for all raw materials,
work-in-process
and finished goods inventories in foreign countries. The FIFO
method is also used for all finished goods inventories of the
Company’s retail business, due to the unique nature of
those operations, and for certain domestic finished goods
inventories. The Company has applied these inventory cost
valuation methods consistently from year to year.
The Company reduces the carrying value of its inventories to the
lower of cost or market for excess or obsolete inventories based
upon assumptions about future demand and market conditions. If
the Company were to determine that the estimated market value of
its inventory is less than the carrying value of such inventory,
the Company would provide a reserve for such difference as a
charge to cost of sales. If actual market conditions are
different from those projected, adjustments to those inventory
reserves may be required. The adjustments would increase or
decrease the Company’s cost of sales and net income in the
period in which they were realized or recorded. Inventory
quantities are verified at various times throughout the year by
performing physical inventory observations and perpetual
inventory cycle count procedures. If the Company determines that
adjustments to the inventory quantities are appropriate, an
increase or decrease to the Company’s cost of sales and
inventory is recorded in the period in which such determination
was made. At January 1, 2011 and January 2, 2010,
management believed that it had provided sufficient reserves for
excess or obsolete inventories.
GOODWILL
AND OTHER
NON-AMORTIZABLE
INTANGIBLES
Goodwill and intangible assets deemed to have indefinite lives
are not amortized, but are subject to impairment tests at least
annually or when indicators of impairment exist. The first step
of the goodwill impairment test requires that the estimated fair
value of the applicable reporting unit be compared with its
recorded value. The Company establishes fair value by
calculating the present value of the expected future cash flows
of the reporting unit and by completing a market analysis. The
Company uses assumptions about expected future operating
performance in determining estimates of those cash flows, which
may differ from actual cash flows. If the recorded values of
these assets are not recoverable, based on the discounted cash
flow and market approach analyses, management performs the next
step, which compares the fair value of the reporting unit
calculated in step one to the fair value of the tangible and
intangible assets of the reporting unit, which results in an
implied fair value of goodwill. Goodwill is reduced by any
shortfall of implied goodwill to its carrying value. Impairment
tests for other
non-amortizable
intangibles require the determination of the fair value of the
intangible asset. The carrying value is reduced by any excess
over fair value. The Company reviewed the carrying amounts of
goodwill and other
non-amortizable
intangible assets and determined that there was no impairment
for the years ended January 1, 2011 and January 2,
2010.
INCOME
TAXES
The Company operates in multiple tax jurisdictions, both inside
and outside the United States. Accordingly, management must
determine the appropriate allocation of income in accordance
with local law for each of these jurisdictions. 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 Company believes its
tax accruals are adequate to cover exposures related to changes
in income allocation between tax jurisdictions. 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 the Company’s consolidated statements
of operations. Management evaluates the potential 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 what the effective
tax rate will be for the full fiscal year and records a
quarterly income tax provision in accordance with the
anticipated annual rate. As the fiscal year progresses, that
estimate is refined based upon actual events and the
distribution of earnings in each tax jurisdiction during the
year. This continual estimation process periodically results in
a change to the expected effective tax rate for the fiscal year.
When this occurs, the Company adjusts the income tax provision
during the quarter in which the change in estimate occurs so
that the
year-to-date
provision reflects the revised anticipated annual rate.
RETIREMENT
BENEFITS
The determination of the obligation and expense for retirement
benefits is dependent on the selection of certain actuarial
assumptions used in calculating such amounts. These assumptions
include, among others, the discount
rate, expected long-term rate of return on plan assets and rates
of increase in compensation. These assumptions are reviewed with
the Company’s actuaries and updated annually based on
relevant external and internal factors and information,
including but not limited to, long-term expected asset returns,
rates of termination, regulatory requirements and plan changes.
The Company utilizes a bond matching calculation to determine
the discount rate used to calculate its year-end pension
liability and subsequent year pension expense. A hypothetical
bond portfolio is created based on a presumed purchase of
individual bonds to settle the plan’s expected future
benefit payments. The discount rate is the resulting yield of
the hypothetical bond portfolio. The bonds selected are rated
AA- or higher by at least two recognized ratings agency and are
non-callable, currently purchasable and non-prepayable. The
discount rate at year end 2010 was 5.94%. Pension expense is
also impacted by the expected long-term rate of return on plan
assets, which the Company determined to be 8.5% in 2010. This
determination is based on both actual historical rates of return
experienced by the pension assets and the long-term rate of
return of a composite portfolio of equity and fixed income
securities that reflects the approximate diversification of the
pension assets.
STOCK-BASED
COMPENSATION
The Company accounts for stock-based compensation in accordance
with the fair value recognition provisions of FASB ASC Topic
718, Compensation – Stock Compensation. The
Company utilizes the Black-Scholes model, which requires the
input of subjective assumptions. These assumptions include
estimating (a) the length of time employees will retain
their vested stock options before exercising them
(“expected term”), (b) the volatility of the
Company’s common stock price over the expected term and
(c) the number of options that will be forfeited. Changes
in these assumptions can materially affect the estimate of fair
value of stock-based compensation and, consequently, the related
expense amounts recognized in the consolidated statements of
operations.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET 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
and to the extent that its long-term debt requirements are
affected by changes in interest rates. The Company manages these
risks by attempting to denominate contractual and other foreign
arrangements in U.S. dollars. The Company does not believe
that there has been a material change during 2010 in the nature
of the Company’s primary market risk exposures, including
the categories of market risk to which the Company is exposed
and the particular markets that present the primary risk of loss
to the Company. As of the date of this Annual Report on
Form 10-K,
the Company does not know of or expect there to be any material
change in the near-term in the general nature of its primary
market risk exposure.
Under the provisions of FASB ASC Topic 815, Derivatives and
Hedging, the Company is required to recognize all
derivatives on the balance sheet at fair value. Derivatives that
are not qualifying hedges must be adjusted to fair value through
earnings. If a derivative is a qualifying hedge, depending on
the nature of the hedge, changes in the fair value of
derivatives are either offset against the change in fair value
of the hedged assets, liabilities, or firm commitments through
earnings or recognized in accumulated other comprehensive income
until the hedged item is recognized in earnings.
The Company conducts wholesale operations outside of the United
States in the United Kingdom, continental Europe and Canada
where the functional currencies are primarily the British pound,
euro and Canadian dollar, respectively. The Company utilizes
foreign currency forward exchange contracts to manage the
volatility associated with U.S. dollar inventory purchases
made by
non-U.S. wholesale
operations in the normal course of business. At January 1,
2011 and January 2, 2010, the Company had outstanding
forward currency exchange contracts to purchase
$111.8 million and $69.6 million, respectively, of
U.S. dollars with maturities ranging up to 364 days.
The Company also has production facilities in the Dominican
Republic and 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. Royalty revenue generated by the Company from
third-party foreign licensees is calculated in the
licensees’ 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.
Assets and liabilities outside the United States are primarily
located in the United Kingdom, Canada and the Netherlands. The
Company’s investments in foreign subsidiaries with a
functional currency other than the U.S. dollar are
generally considered long-term. Accordingly, the Company does
not hedge these net investments. For the year ended
January 1, 2011, the strengthening of the U.S. dollar
compared to foreign currencies decreased the value of these
investments in net assets by $2.9 million. For the year
ended January 2, 2010, the weakening of the
U.S. dollar compared to foreign currencies increased the
value of these investments in net assets by $15.3 million.
These changes resulted in cumulative foreign currency
translation adjustments at January 1, 2011 and
January 2, 2010 of $11.5 million and
$14.5 million, respectively, that are deferred and recorded
as a component of accumulated other comprehensive income in
stockholders’ equity.
Because the Company markets, sells and licenses its products
throughout the world, it could be affected by weak economic
conditions in foreign markets that could reduce demand for its
products.
The Company is exposed to changes in interest rates primarily as
a result of its revolving credit agreement. As of
January 1, 2011 and January 2, 2010, the Company had
no outstanding balances on its revolving credit.
The Company does not enter into contracts for speculative or
trading purposes, nor is it a party to any leveraged derivative
instruments.
OFF-BALANCE
SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements as of
January 1, 2011.
CONTRACTUAL
OBLIGATIONS
The Company has the following payments under contractual
obligations due by period:
(Thousands of Dollars)
Operating leases
Short- and long-term debt obligations
Purchase
obligations (1)
Restructuring related obligations
Deferred compensation
Pension (2)
SERP
Dividends declared
Minimum royalties
Minimum advertising
Total (3)
At January 1, 2011, the Company had $150.0 million of
additional borrowing capacity available under a revolving credit
agreement with a termination date of June 7, 2014 and
$1.4 million of additional borrowing capacity under three
standby letters of credit.
The response to this Item is set forth under the caption
“Quantitative and Qualitative Disclosures About Market
Risk” in Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations,” and is incorporated herein by reference.
The response to this Item is set forth in Appendix A of
this Annual Report on
Form 10-K
and is incorporated herein by reference.
None.
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 report.
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 our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of
internal control over financial reporting as of January 1,
2011, based on the framework in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on that evaluation, management concluded that internal
control over financial reporting was effective as of
January 1, 2011.
The effectiveness of the Company’s internal control over
financial reporting as of January 1, 2011, has been audited
by Ernst & Young LLP, an independent registered public
accounting firm, as stated in its report, which is included in
Appendix A and is incorporated into this Item 9A by
reference.
Changes
in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over
financial reporting that occurred during the sixteen-week period
ended January 1, 2011 that has materially affected, or that
is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
The Company’s Audit Committee is comprised of four Board
members, all of whom are independent under independence
standards adopted by the Board and applicable SEC regulations
and New York Stock Exchange standards (including independence
standards related specifically to Audit Committee membership).
The Audit Committee members each have financial and business
experience with companies of substantial size and complexity and
have an understanding of financial statements, internal controls
and audit committee functions. The Company’s Board of
Directors has determined that Jeffrey M. Boromisa and William K.
Gerber are audit committee financial experts, as defined by the
SEC. Additional information regarding the Audit Committee is
provided in the Definitive Proxy Statement of the Company with
respect to the Annual Meeting of Stockholders to be held on
April 21, 2011, under the caption “Corporate
Governance” under the subheading “Board of Directors
and Committees.”
The Company has adopted an Accounting and Finance Code of Ethics
that applies to the Company’s principal executive officer,
principal financial officer and principal accounting officer,
and has adopted a Code of Conduct & Compliance that
applies to the Company’s directors and employees. The
Accounting and Finance Code of Ethics and the Code of
Conduct & Compliance are available on the
Company’s website at
www.wolverineworldwide.com/investor-relations/corporate-governance.
Any waiver from the Accounting and Finance Code of Ethics or the
Code of Conduct & Compliance with respect to the
Company’s executive officers and directors will be
disclosed on the Company’s website. Any amendment to the
Accounting and Finance Code of Ethics and the Code of
Conduct & Compliance will be disclosed on the
Company’s website.
The information regarding directors of the Company contained
under the caption “Directors” in the Definitive Proxy
Statement of the Company with respect to the Annual Meeting of
Stockholders to be held on April 21, 2011, is incorporated
herein by reference.
The information regarding directors and executive officers of
the Company under the caption “Additional Information”
under the subheading “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Definitive Proxy
Statement of the Company with respect to the Annual Meeting of
Stockholders to be held on April 21, 2011, is incorporated
herein by reference.
The information contained under the captions “Non-Employee
Director Compensation in Fiscal Year 2010,”
“Compensation Discussion and Analysis,”
“Compensation Committee Report,” “2010 Summary
Compensation Table,” “Grants of Plan-Based Awards in
Fiscal 2010,” “Outstanding Equity Awards at 2010
Fiscal Year-End,” “Option Exercises and Stock Vested
in Fiscal 2010,” “Pension Plans and 2010 Pension
Benefits” and “Potential Payments upon Termination or
Change in Control” in the Definitive Proxy Statement of the
Company with respect to the Annual Meeting of Stockholders to be
held on April 21, 2011, is incorporated herein by
reference. The information contained under the caption
“Corporate Governance” under the subheadings
“Risk Considerations in Compensation Programs” and
“Board of Directors and Committees” in the Definitive
Proxy Statement of the Company with respect to the Annual
Meeting of Stockholders to be held on April 21, 2011, is
also incorporated herein by reference.
The information contained under the caption “Securities
Ownership of Officers and Directors and Certain Beneficial
Owners” contained in the Definitive Proxy Statement of the
Company with respect to the Annual Meeting of Stockholders to be
held on April 21, 2011, is incorporated herein by reference.
Equity
Compensation Plan Information
The following table provides information about the
Company’s equity compensation plans as of January 1,
2011:
Total
The Outside Directors’ Deferred Compensation Plan is a
supplemental, unfunded, nonqualified deferred compensation plan
for non-employee directors. Beginning in 2006, the Company began
paying an annual equity retainer to non-management directors in
the form of a contribution under the Outside Directors’
Deferred Compensation Plan. Participation in the plan in
addition to the annual equity retainer is voluntary. The plan
allows participating directors to receive, in lieu of some or
all directors’ fees, a number of stock units equal to the
amount of the deferred directors’ fees divided by the fair
market value of the Company’s common stock on the date of
payment of the next cash dividend on the Company’s common
stock. These stock units are increased by a dividend equivalent
based on dividends paid by the Company and the amount of stock
units credited to the participating director’s fee account
and retirement account. Upon distribution, the participating
directors receive a number of shares of the Company’s
common stock equal to the number of stock units to be
distributed at that time. Distribution is triggered by
termination of service as a director or by a change in control
of the Company and can occur in a lump sum, in installments or
on another deferred basis. Of the 427,265 shares issuable
under the Outside Directors’ Deferred Compensation Plan,
211,655 shares have been issued to a trust to satisfy the
Company’s obligations when distribution is triggered and
are included in shares reported as issued and outstanding as of
the record date.
The information contained under the caption “Related Party
Matters” under the subheadings “Certain Relationships
and Related Transactions” and “Related Person
Transactions Policy” contained in the Definitive Proxy
Statement of the Company with respect to the Annual Meeting of
Stockholders to be held on April 21, 2011, is incorporated
herein by reference. The information contained under the caption
“Corporate Governance” under the subheading
“Director Independence” contained in the Definitive
Proxy Statement of the Company with respect to the Annual
Meeting of Stockholders to be held on April 21, 2011, is
incorporated herein by reference.
The information contained under the caption “Independent
Auditor” in the Definitive Proxy Statement of the Company
with respect to the Annual Meeting of Stockholders to be held on
April 21, 2011, is incorporated herein by reference.
The following consolidated financial statements of Wolverine
World Wide, Inc. and its subsidiaries are filed as a part of
this report:
The following consolidated financial statement schedule of
Wolverine World Wide, Inc. and its subsidiaries is filed as a
part of this report:
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.
The following exhibits are filed as part of this report:
Number
|
Exhibit |
||||
| Number | Document | |||
| 10 | .12 | Amended and Restated Stock Option Loan Program.* Previously filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2007. Here incorporated by reference. | ||
| 10 | .13 | Executive Severance Agreement.* Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 17, 2008. Here incorporated by reference. A participant schedule of current executive officers who are parties to the agreement is attached as Exhibit 10.13. | ||
| 10 | .14 | Form of Indemnification Agreement.* The Company has entered into an Indemnification Agreement with each director and with Messrs. Grady, Grimes, Krueger, McBreen and Zwiers and Ms. Linton. Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 25, 2007. Here incorporated by reference. | ||
| 10 | .15 | Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. Here incorporated by reference. | ||
| 10 | .16 | Employees’ Pension Plan (Restated as amended through November 29, 2010).* | ||
| 10 | .17 | Form of Incentive Stock Option Agreement.* Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .18 | Form of Non-Qualified Stock Option Agreement for Blake W. Krueger and Timothy J. O’Donovan.* Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .19 | Form of Non-Qualified Stock Option Agreement for executive officers other than those to whom Exhibit 10.18 applies.* Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .20 | Form of Restricted Stock Agreement.* Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .21 | Form of Incentive Stock Option Agreement.* Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .22 | Form of Non-Qualified Stock Option Agreement for Blake W. Krueger and Timothy J. O’Donovan.* Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .23 | Form of Non-Qualified Stock Option Agreement for executive officers other than those to whom Exhibit 10.22 applies.* Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .24 | Form of Restricted Stock Agreement.* Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .25 | Form of Stock Option Agreement for non-employee directors.* Previously filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005. Here incorporated by reference. | ||
| 10 | .26 | 2009 Form of Non-Qualified Stock Option Agreement for Donald T. Grimes, Blake W. Krueger, Pamela L. Linton, Michael F. McBreen and James D. Zwiers.* Previously filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. Here incorporated by reference. | ||
| 10 | .27 | 2009 Form of Non-Qualified Stock Option Agreement for executive officers other than those to whom Exhibit 10.26 applies.* Previously filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. Here incorporated by reference. | ||
| 10 | .28 | Form of Performance Share Award Agreement (2009 – 2011 performance period).* Previously filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. Here incorporated by reference. | ||
43
The Company will furnish a copy of any exhibit listed above to
any stockholder without charge upon written request to
Mr. Kenneth A. Grady, General Counsel and Secretary, 9341
Courtland Drive N.E., Rockford, Michigan 49351.
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.
Dated: March 2, 2011
/s/ Blake
W. Krueger
Blake
W. Krueger
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
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.
/s/ Donald
T. Grimes
/s/ Jeffrey
M. Boromisa
/s/ William
K. Gerber
/s/ Alberto
L. Grimoldi
/s/ Joseph
R. Gromek
/s/ David
T. Kollat
/s/ Brenda
J. Lauderback
/s/ David
P. Mehney
/s/ Timothy
J. O’Donovan
/s/ Shirley
D. Peterson
/s/ Michael
A. Volkema
APPENDIX A
Financial
Statements
CONSOLIDATED
BALANCE SHEETS
(Thousands of Dollars, Except Share and Per Share Data)
Current assets:
Cash and cash equivalents
Accounts receivable, less allowances (2010 –
$(11,413); 2009 – $(13,946))
Inventories
Finished products
Raw materials and
work-in-process
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment:
Land
Buildings and improvements
Machinery and equipment
Software
Accumulated depreciation
Other assets:
Goodwill
Other
non-amortizable
intangibles
Cash surrender value of life insurance
Other
Total assets
Current liabilities:
Accounts payable
Accrued salaries and wages
Income taxes
Taxes, other than income taxes
Restructuring reserve
Other accrued liabilities
Accrued pension liabilities
Current maturities of long-term debt
Total current liabilities
Long-term debt, less current maturities
Deferred compensation
Accrued pension liabilities
Other liabilities
Stockholders’ equity:
Common stock, $1 par value: authorized
160,000,000 shares; shares
issued, including treasury shares: 2010 – 63,976,387; 2009 – 62,763,924
issued, including treasury shares: 2010 – 63,976,387; 2009 – 62,763,924
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Cost of shares in treasury: 2010 –
14,976,835 shares; 2009 – 13,170,471 shares
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
AND COMPREHENSIVE INCOME
COMMON STOCK OUTSTANDING
Balance at beginning of the year
Common stock issued under stock incentive plans
(2010 – 1,212,463 shares; 2009 — 1,108,112 shares; 2008 – 570,691 shares)
(2010 – 1,212,463 shares; 2009 — 1,108,112 shares; 2008 – 570,691 shares)
Balance at end of the year
ADDITIONAL PAID-IN CAPITAL
Stock-based compensation expense
Amounts associated with common stock issued
under stock incentive plans:
under stock incentive plans:
Proceeds over par value
Income tax benefits
Issuance of performance-based shares (2010 –
215,027 shares;
2009 286,006 shares)
2009 286,006 shares)
Issuance of treasury shares (2010 –
25,829 shares;
2009 – 32,455 shares; 2008 – 22,842 shares)
2009 – 32,455 shares; 2008 – 22,842 shares)
Net change in employee notes receivable
RETAINED EARNINGS
Net earnings
Cash dividends declared (2010 – $0.44 per share;
2009 – $0.44 per share; 2008 – $0.44 per share)
2009 – $0.44 per share; 2008 – $0.44 per share)
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
INCOME (LOSS)
Foreign currency translation adjustments
Change in fair value of foreign exchange contracts,
net of taxes (2010 – $(750); 2009 – $3,482; 2008 – $(3,447))
net of taxes (2010 – $(750); 2009 – $3,482; 2008 – $(3,447))
Pension adjustments, net of taxes (2010 – $(1,551);
2009 – $4,228; 2008 – $18,963)
2009 – $4,228; 2008 – $18,963)
COST OF SHARES IN TREASURY
Common stock acquired for treasury (2010 –
1,832,193
shares; 2009 – 454,205 shares; 2008 – 2,921,264 shares)
shares; 2009 – 454,205 shares; 2008 – 2,921,264 shares)
Total stockholders’ equity at end of the year
COMPREHENSIVE INCOME
Change in fair value of foreign exchange contracts, net
of taxes
of taxes
Pension adjustments, net of taxes
Total comprehensive income
CONSOLIDATED
STATEMENTS OF OPERATIONS
Cost of goods sold
Gross profit
Operating profit
Other expenses (income):
Interest expense
Interest income
Other income - net
Income taxes
Net earnings
Net earnings per share (see Note 1):
Basic
Diluted
CONSOLIDATED
STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net earnings
Adjustments necessary to reconcile net earnings
to net cash provided by operating activities:
to net cash provided by operating activities:
Depreciation
Amortization
Deferred income taxes
Stock-based compensation expense
Excess tax benefits from stock-based compensation
Pension expense
Restructuring and other transition costs
Cash payments related to restructuring and other
transition costs
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 acquisitions
Additions to property, plant and equipment
Proceeds from sales of property, plant and equipment
Other
Net cash used in investing activities
FINANCING ACTIVITIES
Net borrowings (repayments) under revolver
Payments of long-term debt
Payments of capital lease obligations
Cash dividends paid
Purchase of common stock for treasury
Proceeds from shares issued under stock incentive plans
Excess tax benefits from stock-based compensation
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
OTHER CASH FLOW INFORMATION
Interest paid
Net income taxes paid
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
All amounts are in thousands of dollars except share and per
share data and elsewhere as noted.
Nature of
Operations
Wolverine World Wide, Inc. is a leading designer, manufacturer
and marketer of a broad range of quality casual shoes,
performance outdoor footwear and apparel, industrial work shoes,
boots and apparel, and uniform shoes and boots. The
Company’s portfolio of owned and licensed brands includes:
Bates®,
Cat®
Footwear,
Chaco®,
Cushe®,
Harley-Davidson®
Footwear, Hush
Puppies®,
HyTest®,
Merrell®,
Patagonia®
Footwear,
Sebago®,
Soft
Style®
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
its own brands as well as branded footwear and apparel from
other manufacturers; a leathers division that markets
Wolverine Performance
Leatherstm;
and a pigskin procurement operation.
Principles
of Consolidation
The consolidated financial statements include the accounts of
Wolverine World Wide, Inc. and its wholly-owned subsidiaries
(collectively, the “Company”). All intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal
Year
The Company’s fiscal year is the 52- or 53-week period that
ends on the Saturday nearest to December 31. Fiscal years
presented in this report include the 52-week period ended
January 1, 2011, the 52-week period ended January 2,
2010 and the 53-week period ended January 3, 2009.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results
could differ from those estimates.
Revenue
Recognition
Revenue is recognized on the sale of products manufactured or
sourced by the Company when the related goods have been shipped,
legal title has passed to the customer and collectability is
reasonably assured. Revenue generated through licensees and
distributors involving products bearing the Company’s
trademarks is recognized as earned according to stated
contractual terms upon either the purchase or shipment of
branded products by licensees and distributors.
The Company records provisions against gross revenue for
estimated stock returns and cash discounts in the period when
the related revenue is recorded. These estimates are based on
factors that include, but are not limited to, historical stock
returns, historical discounts taken and analysis of credit
memorandum activity.
Cost of
Goods Sold
Cost of goods sold for the Company’s operations include the
actual product costs, including inbound freight charges,
purchasing, sourcing, inspection and receiving costs.
Warehousing costs are included in selling, general and
administrative expenses.
Shipping
and Handling Costs
Shipping and handling costs that are charged to and reimbursed
by the customer are recognized as revenue, while the related
expenses incurred by the Company are recorded as cost of goods
sold.
Cash
Equivalents
Cash equivalents include highly liquid investments with an
original maturity of three months or less. Cash equivalents are
stated at cost, which approximates market.
Allowance
for Uncollectible Accounts
The Company maintains an allowance for uncollectible accounts
receivable for estimated losses resulting from its
customers’ inability 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. Adjustments to these estimates
may be required if the financial condition of the Company’s
customers were to change.
Inventories
The Company values its inventory at the lower of cost or market.
Cost is determined by the
last-in,
first-out (“LIFO”) method for all domestic raw
materials and
work-in-process
inventories and certain domestic finished goods inventories.
Cost is determined using the
first-in,
first-out (“FIFO”) method for all raw materials,
work-in-process
and finished goods inventories in foreign countries; certain
domestic finished goods inventories; and for all finished goods
inventories of the Company’s consumer-direct business, due
to the unique nature of those operations. The Company has
applied these inventory cost valuation methods consistently from
year to year.
Property,
Plant and Equipment
Property, plant and equipment are stated on the basis of cost
and include expenditures for computer hardware and software,
store furniture and fixtures, office furniture and machinery and
equipment. Normal repairs and maintenance are expensed as
incurred.
Depreciation of property, plant and equipment is computed using
the straight-line method. The depreciable lives range from five
to forty years for buildings and improvements and from three to
ten years for machinery, equipment and software. Leasehold
improvements are depreciated at the lesser of the estimated
useful life or lease term, including reasonably-assured lease
renewals as determined at lease inception.
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. Other intangibles consist primarily of
trademarks and patents. Goodwill and intangible assets deemed to
have indefinite lives are not amortized, but are subject to
impairment tests at least annually in accordance with FASB
Accounting Standards Codification (ASC) Topic 350,
Intangibles – Goodwill and Other. The Company
reviews the carrying amounts of goodwill and other
non-amortizable
intangible assets at least annually, or when indicators of
impairment are present, by reporting unit 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 shortfall of fair value to recorded
value.
Inherent in the development of the present value of future cash
flow projections are assumptions and estimates the Company
derives from a review of its operating results, business plans,
expected growth rates, cost of capital and tax rates. The
Company also makes certain assumptions about future economic
conditions, interest rates and other market data that it relies
upon in determining the fair value of assets under the
discounted cash flow method. Many of the factors used in
assessing fair value are outside the control of the Company, and
these assumptions and estimates can change in future periods.
The market approach is the other primary method used for
estimating fair value of a reporting unit. This approach relies
on the market value (based on market capitalization) of
companies that are engaged in the same or a similar line of
business.
Other amortizable intangible assets (principally patents) are
amortized using the straight-line method over their estimated
useful lives (periods ranging from two to seven years). Other
amortizable intangible assets are included in
other assets on the consolidated balance sheets and have gross
carrying amounts of $8,614 and $8,223 for fiscal 2010 and fiscal
2009, respectively, and accumulated amortization of $6,472 and
$4,860 for fiscal 2010 and fiscal 2009, respectively.
Estimated aggregate amortization expense for such intangibles
for each of the five fiscal years subsequent to 2010 is as
follows:
Amortization expense
The Company has performed the required annual impairment tests
as of the first day of the fourth quarter and has determined
that goodwill and other
non-amortizable
intangibles were not impaired at January 1, 2011 and
January 2, 2010.
The changes in the carrying amount of goodwill and other
non-amortizable
intangibles for the years ended January 1, 2011 and
January 2, 2010 are as follows:
Balance at January 3, 2009
Intangibles acquired
Foreign currency translation effects
Balance at January 2, 2010
Balance at January 1, 2011
Impairment
of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset or an asset group may not be recoverable.
Each impairment test is based on a comparison of the carrying
amount of the asset or asset group to the future undiscounted
net cash flows expected to be generated by the asset or asset
group. If such assets are considered to be impaired, the
impairment amount to be recognized is the amount by which the
carrying value of the assets exceeds their fair value.
Retirement
Benefits
The determination of the obligation and expense for retirement
benefits is dependent on the selection of certain actuarial
assumptions used in calculating such amounts. These assumptions
include, among others, the discount rate, expected long-term
rate of return on plan assets 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 6 to the consolidated financial statements for
additional information.
Stock-Based
Compensation
The Company accounts for stock-based compensation in accordance
with the fair value recognition provisions of FASB ASC Topic
718, Compensation – Stock Compensation
(“ASC 718”). The Company recognized compensation
expense of $11,543, $8,649, and $8,164 and related income tax
benefits of $3,552, $2,321, and $1,699 for grants under its
stock-based compensation plans in the statements of operations
for the years ended January 1, 2011, January 2, 2010,
and January 3, 2009, respectively.
Stock-based compensation expense recognized in the consolidated
condensed statements of operations for the years ended
January 1, 2011, January 2, 2010, and January 3,
2009, is based on awards ultimately expected to vest and, as
such, has been reduced for estimated forfeitures. ASC 718
requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Forfeitures were
estimated based on historical experience.
The Company estimated the fair value of employee stock options
on the date of grant using the Black-Scholes model. The
estimated weighted-average fair value for each option granted
was $6.97, $4.40, and $5.68 per share for fiscal years 2010,
2009, and 2008, respectively, with the following
weighted-average assumptions:
Expected market price volatility
(1)
Risk-free interest rate
(2)
Dividend yield
(3)
Expected term
(4)
The Company issued 1,325,475 shares of common stock in
connection with the exercise of stock options and restricted
stock grants made during the fiscal year ended January 1,
2011. The Company cancelled 26,324 shares of common stock
issued under restricted stock awards as a result of forfeitures
during 2010.
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.
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 nonforfeitable rights to dividends or
dividend equivalents, whether paid or unpaid, are participating
securities and must be included in the computation of earnings
per share pursuant to the two-class method.
The following table sets forth the computation of basic and
diluted earnings per share:
Numerator:
Net earnings
Adjustment for earnings allocated to nonvested restricted common
stock
Net earnings used to calculate basic earnings per share
Adjustment for earnings reallocated to nonvested restricted
common stock
Net earnings used to calculate diluted earnings per share
Denominator:
Weighted average shares outstanding
Adjustment for nonvested restricted common stock
Shares used to calculate basic earnings per share
Effect of dilutive stock options
Shares used to calculate diluted earnings per share
Net earnings per share:
Basic
Diluted
Options to purchase 865,072 shares of common stock in 2010,
2,353,412 shares in 2009 and 1,273,676 shares in 2008
have not been included in the denominator for the computation of
diluted earnings per share because the related exercise prices
were greater than the average market price for the year, and
they were, therefore, anti-dilutive.
Foreign
Currency
For most of the Company’s international subsidiaries, the
local currency is the functional currency. Assets and
liabilities of these subsidiaries are translated into
U.S. dollars at the year-end exchange rate. Operating
statement amounts are translated at average exchange rates for
each period. The cumulative translation adjustments resulting
from changes in exchange rates are included in the consolidated
balance sheets as a component of accumulated other comprehensive
income (loss) in stockholders’ equity. Transaction gains
and losses are included in the consolidated statements of
operations and were not material for fiscal years 2010, 2009 and
2008.
Financial
Instruments and Risk Management
The Company follows FASB ASC Topic 820, Fair Value
Measurements and Disclosures (“ASC 820”), which
provides a consistent definition of fair value, focuses on exit
price, prioritizes the use of market-based inputs over
entity-specific inputs for measuring fair value and establishes
a three-tier hierarchy for fair value measurements. This topic
requires fair value measurements to be classified and disclosed
in one of the following three categories:
Level 1:
Level 2:
Level 3:
The Company’s financial instruments consist of cash and
cash equivalents, accounts and notes receivable, accounts
payable, foreign currency forward exchange contracts, borrowings
under the Company’s revolving credit agreement and
long-term debt. The carrying amount of the Company’s
financial instruments is historical cost, which
approximates their fair value, except for the foreign currency
exchange contracts, which are carried at fair value. The Company
does not hold or issue financial instruments for trading
purposes.
As of January 1, 2011 and January 2, 2010, liabilities
of $1,198 and $2,625, respectively, have been recognized for the
fair value of the Company’s foreign currency forward
exchange contracts. In accordance with ASC 820, these
assets and liabilities fall within Level 2 of the fair
value hierarchy. The prices for the financial instruments are
determined using prices for recently-traded financial
instruments with similar underlying terms as well as directly or
indirectly observable inputs. The Company did not have any
additional assets or liabilities that were measured at fair
value on a recurring basis at January 1, 2011 and
January 2, 2010.
The Company follows FASB ASC Topic 815, Derivatives and
Hedging, which is intended to improve transparency in
financial reporting and requires that all derivative instruments
be recorded on the consolidated balance sheets at fair value by
establishing criteria for designation and effectiveness of
hedging relationships. The Company utilizes foreign currency
forward exchange contracts to manage the volatility associated
with U.S. dollar inventory purchases made by
non-U.S. wholesale
operations in the normal course of business. At January 1,
2011 and January 2, 2010, foreign exchange contracts with a
notional value of $111,802 and $69,618, respectively, were
outstanding to purchase U.S. dollars with maturities
ranging up to 364 days. These contracts have been
designated as cash flow hedges.
The fair value of the foreign currency forward exchange
contracts represents the estimated receipts or payments
necessary to terminate the contracts. Hedge effectiveness is
evaluated by the hypothetical derivative method. Any hedge
ineffectiveness is reported within the cost of goods sold
caption of the consolidated condensed statements of operations.
Hedge ineffectiveness was not material to the Company’s
consolidated condensed financial statements for fiscal years
2010, 2009, or 2008. If, in the future, the foreign exchange
contracts are determined to be ineffective hedges or terminated
before their contractual termination dates, the Company would be
required to reclassify into earnings all or a portion of the
unrealized amounts related to the cash flow hedges that are
currently included in accumulated other comprehensive income
(loss) within stockholders’ equity.
For the fiscal years ended January 1, 2011, January 2,
2010, and January 3, 2009, the Company recognized a net
loss of $318, a net loss of $547 and a net gain of $434,
respectively, in accumulated other comprehensive income (loss)
related to the effective portion of its foreign exchange
contracts. For the fiscal years ended January 1, 2011,
January 2, 2010, and January 3, 2009, the Company
reclassified a gain of $1,274, a loss of $2,996, and a gain of
$2,132, respectively, from accumulated other comprehensive
income (loss) into cost of goods sold related to the effective
portion of its foreign exchange contracts designated and
qualifying as cash flow hedges.
Comprehensive
Income (Loss)
Comprehensive income (loss) represents net earnings and any
revenue, expenses, gains and losses that, under accounting
principles generally accepted in the United States, are excluded
from net earnings and recognized directly as a component of
stockholders’ equity.
The ending accumulated other comprehensive income (loss) is as
follows:
Foreign currency translation adjustments
Change in fair value of foreign exchange contracts,
net of taxes
(2010 – $828; 2009 – $1,578)
net of taxes
(2010 – $828; 2009 – $1,578)
Pension adjustments, net of taxes
(2010 – $26,908; 2009 – $28,459)
(2010 – $26,908; 2009 – $28,459)
Accumulated other comprehensive income (loss)
Reclassifications
Certain prior period amounts on the consolidated condensed
financial statements have been reclassified to conform to
current period presentation. These reclassifications did not
affect net earnings.
Inventories of $66,370 at January 1, 2011 and $48,800 at
January 2, 2010 have been valued using the LIFO method. If
the FIFO method had been used, inventories would have been
$11,071 and $9,838 higher than reported at January 1, 2011
and January 2, 2010, respectively.
Long-term debt consists of the following obligations:
Notes payable
Current maturities
Total long-term debt
In 2009, the Company entered into a $1,615 note payable in
connection with the
Cushe®
acquisition. The note is payable over three years at a fixed
interest rate of 4.5%.
The Company’s credit agreement with a bank syndicate
provides the Company with access to capital under a revolving
credit facility, including a swing-line facility and letter of
credit facility, in an initial aggregate amount of up to
$150.0 million and is set to expire June 17, 2014.
This amount is subject to increase up to a maximum aggregate
amount of $225.0 million under certain circumstances. The
revolving credit facility is used to support working capital
requirements and other business needs. There were no amounts
outstanding at January 1, 2011 under the current revolving
credit facility and there were no amounts outstanding at
January 2, 2010 under the Company’s previous revolving
credit facility. The Company considers balances drawn on the
revolving credit facility, if any, to be short-term in nature.
The Company was in compliance with all debt covenant
requirements at January 1, 2011 under the current revolving
credit facility and January 2, 2010 under the
Company’s previous revolving credit facility. Proceeds from
the revolving credit facility, along with cash flows from
operations, are expected to be sufficient to meet working
capital needs for the foreseeable future. Any excess cash flows
from operating activities are expected to be used to purchase
property, plant and equipment, reduce debt, fund internal and
external growth initiatives, pay dividends or repurchase the
Company’s common stock. Interest is paid at a variable rate
based on one of the following options elected by the Company:
prime, LIBOR, or money market rate plus applicable spread.
The Company leases machinery, equipment, and certain warehouse,
office and retail store space under operating lease agreements
that expire at various dates through 2023. Certain leases
contain renewal provisions and generally require the Company to
pay utilities, insurance, taxes and other operating expenses.
At January 1, 2011, minimum rental payments due under all
non-cancelable leases were as follows:
Rental expense under all operating leases, consisting primarily
of minimum rentals, totaled $18,919 in fiscal year 2010, $19,187
in fiscal year 2009 and $18,255 in fiscal year 2008.
The Company has 2,000,000 authorized shares of $1 par value
preferred stock, of which none was issued or outstanding as of
January 1, 2011 or January 2, 2010. 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.
As of January 1, 2011, the Company had stock options
outstanding under various stock incentive plans. As of
January 1, 2011, the Company had approximately 4,518,114
stock incentive units (stock options, stock appreciation
rights, restricted stock, restricted stock units and common
stock) available for issuance. Each option or stock appreciation
right granted counts as one stock incentive unit and all other
awards granted, including restricted stock, count as two stock
incentive units. Options granted under each plan have an
exercise price equal to the fair market value of the underlying
stock on the grant date, expire no later than ten years from the
grant date, and generally vest over three years. Restricted
stock issued under these plans is subject to certain
restrictions, including a prohibition against any sale,
transfer, or other disposition by the officer or employee during
the vesting period (except for certain transfers for estate
planning purposes for certain officers), and a requirement to
forfeit all or a certain portion of the award upon certain
terminations of employment or upon failure to achieve
performance criteria in certain instances. These restrictions
typically lapse over a three- to five-year period from the date
of the award. The Company has elected to recognize expense for
these stock-based incentive plans ratably over the vesting term
on a straight-line basis. Certain option and restricted share
awards provide for accelerated vesting under various scenarios,
including retirement and upon a change in control of the
Company. With regard to acceleration of vesting upon retirement,
employees of eligible retirement age are vested in accordance
with plan provisions and applicable stock option and restricted
stock agreements. The Company issues shares to plan participants
upon exercise or vesting of stock-based incentive awards from
either authorized, but unissued, shares or treasury shares.
A summary of the transactions under the stock option plans is as
follows:
Outstanding at December 29, 2007
Granted
Exercised
Cancelled
Outstanding at January 3, 2009
Outstanding at January 2, 2010
Outstanding at January 1, 2011
Estimated forfeitures
Vested or expected to vest at
January 1, 2011
Nonvested at January 1, 2011
and expected to vest
Exercisable at January 1, 2011
The total pretax intrinsic value of options exercised during the
years ended January 1, 2011, January 2, 2010 and
January 3, 2009 was $10,407, $5,745 and $8,593,
respectively. As of January 1, 2011, there was $2,393 of
unrecognized compensation expense related to stock option awards
that is expected to be recognized over a weighted-average period
of 1.1 years. As of January 2, 2010 and
January 3, 2009, there was $2,329 and $2,851, respectively,
of unrecognized compensation expense related to stock option
awards that were expected to be recognized over a
weighted-average period of 1.2 years.
The aggregate intrinsic value in the preceding table represents
the total pretax intrinsic value, based on the Company’s
closing stock price of $31.88 as of January 1, 2011, which
would have been received by the option holders had all option
holders exercised
in-the-money
options as of that date. The total number of
in-the-money
options exercisable as of January 1, 2011 was 3,134,585 and
the weighted-average exercise price was $21.24. As of
January 2, 2010, 2,921,804 outstanding options were
exercisable and the weighted-average exercise price was $18.17.
A summary of the nonvested restricted shares issued under stock
award plans is as follows:
Nonvested at December 29, 2007
Vested
Forfeited
Nonvested at January 3, 2009
Nonvested at January 2, 2010
Beginning in 2009, the Board of Directors has awarded an annual
grant of performance share awards to the officers of the
Company. The number of performance-based shares that will be
earned (and eligible to vest) during the performance period will
depend on the Company’s level of success in achieving two
specifically identified performance targets. Any portion of the
performance shares that are not earned by the end of the
three-year measurement period will be forfeited. The final
determination of the number of shares to be issued in respect to
an award is determined by the Compensation Committee of the
Company’s Board of Directors.
As of January 1, 2011, there was $6,194 of unrecognized
compensation expense related to nonvested share-based
compensation arrangements granted under restricted stock award
plans. That cost is expected to be recognized over a
weighted-average period of 1.6 years. The total fair value
of shares vested during the year ended January 1, 2011 was
$3,012. As of January 2, 2010, there was $4,792 of
unrecognized compensation cost related to nonvested
share-based
compensation arrangements granted under restricted stock award
plans. That cost is expected to be recognized over a
weighted-average period of 2.0 years. The total fair value
of shares vested during the year ended January 2, 2010 was
$2,761. As of January 3, 2009, there was $4,072 of
unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under restricted stock award
plans. That cost is expected to be recognized over a
weighted-average period of 1.8 years. The total fair value
of shares vested during the year ended January 3, 2009 was
$6,300.
The Company has two non-contributory, defined benefit pension
plans covering a majority of its domestic employees. The
Company’s principal defined benefit pension plan provides
benefits based on the employee’s years of service and final
average earnings (as defined in the plan), while the other plan
provides benefits at a fixed rate per year of service.
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 these employees to receive payments from
the Company for a period of fifteen to eighteen years following
retirement. The Company maintains life insurance policies with a
cash surrender value of $36,042 at January 1, 2011 and
$35,405 at January 2, 2010 that are intended to fund
deferred compensation benefits under the SERP and deferred
compensation agreements.
The Company has a defined contribution 401(k) plan covering
substantially all domestic employees that provides for Company
contributions based on earnings. The Company recognized expense
for its defined contribution plan of $2,061 in fiscal year 2010,
$1,919 in fiscal year 2009 and $2,245 in fiscal year 2008.
The Company has certain defined contribution plans at foreign
subsidiaries. Contributions to these plans were $858 in fiscal
year 2010, $954 in fiscal year 2009 and $1,194 in fiscal year
2008. The Company also has a defined benefit plan at a foreign
location that provides for retirement benefits based on years of
service. The obligation recorded under this plan was $3,068 at
January 1, 2011, and $2,778 at January 2, 2010 and is
recognized as a deferred compensation liability on the
accompanying balance sheet.
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:
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 losses
Special termination benefits
Benefits paid to plan participants
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 on plan assets
Company contributions
Fair value of pension assets at end of the year
Funded status
Amounts recognized in the consolidated balance sheets:
Current liabilities
Non current liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive income
(loss):
Unrecognized net actuarial loss (net of tax: 2010 -
$(50,452); 2009 -$(53,165))
Unrecognized prior service cost (net of tax: 2010 - $(404);
2009 - $(572))
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
Net funded status of pension plans and SERP (supplemental)
The accumulated benefit obligations for all defined benefit
pension plans and the SERP were $218,949 at January 1, 2011
and $202,428 at January 2, 2010.
The following is a summary of net pension and SERP expense
recognized by the Company:
Service cost pertaining to benefits earned during the year
Interest cost on projected benefit obligations
Expected return on pension assets
Net amortization loss
Curtailment (gain)
Special termination benefit charge
Net pension expense
The prior service cost and actuarial loss included in
accumulated other comprehensive income (loss) and expected to be
recognized in net periodic pension expense during 2011 is $145
($94, net of tax) and $11,931 ($7,755, net of tax),
respectively. Expense for qualified defined benefit pension
plans was $11,903 in 2010, $12,871 in 2009 and $3,601 in 2008.
Weighted-average assumptions used to determine benefit
obligations at fiscal year end:
Discount rate
Rate of compensation increase
Weighted average assumptions used to determine net periodic
benefit cost for the years ended:
Expected long-term rate of return on plan assets
Unrecognized net actuarial losses exceeding certain corridors
are amortized over a five-year period, unless the minimum
amortization method based on average remaining service periods
produces a higher amortization. The Company utilizes a bond
matching calculation to determine the discount rate. A
hypothetical bond portfolio is created based on a presumed
purchase of 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 pension expense for the subsequent year.
The long-term rate of return is based on overall market
expectations for a balanced portfolio with an asset mix similar
to the Company’s, utilizing historic returns for broad
market and fixed income indices.
Equity securities
Fixed income investments
Cash and money market investments
Fair value of plan assets
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. Policy guidelines indicate
that total equities should not exceed 80% and fixed income
securities should not exceed 50%. Within the equity and fixed
income classifications, the investments are diversified.
In accordance with ASC 820, these assets fall within
Level 1 of the fair value hierarchy. Fair value is
determined using quoted prices (unadjusted) in active markets
for identical assets.
The Company expects to contribute $31,800 to its qualified
defined benefit pension plans and $1,962 to the SERP in 2011.
Expected benefit payments for the five years subsequent to 2010
and the sum of the five years following those are as follows:
Expected benefit payments
The geographic components of earnings before income taxes are as
follows:
United States
Foreign
The provisions for income taxes consist of the following:
Current expense:
Federal
State
Foreign
Deferred credit
A reconciliation of the Company’s total income tax expense
and the amount computed by applying the statutory federal income
tax rate of 35% to earnings before income taxes is as follows:
Income taxes at U.S. statutory rate
State income taxes, net of federal income tax
Nontaxable earnings of foreign affiliates
Research and development credits
Foreign earnings taxed at rates different from
the U.S. statutory rate
Adjustments for uncertain tax positions
Other
Significant components of the Company’s deferred income tax
assets and liabilities as of the end of fiscal years 2010 and
2009 are as follows:
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 carryforward
Other amounts not deductible until paid
Total gross deferred income tax assets
Less valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation
Prepaid pension expense
Total deferred income tax liabilities
The valuation allowance for deferred tax assets as of
January 1, 2011 and January 2, 2010, was $1,397 and
$1,026, respectively. The net change in the total valuation
allowance for each of the years ended January 1, 2011, and
January 2, 2010, was $371 and $380, respectively. The
valuation allowance was related to foreign net operating loss
carryforwards and foreign tax credit carryforwards that, in the
judgment of management, are not more likely than not to be
realized. The ultimate realization of the carryforwards depends
on the generation of future taxable income in the foreign tax
jurisdictions.
At January 1, 2011, the Company had foreign net operating
loss carryforwards of $2,432 and foreign tax credit
carryforwards of $545, which are available for an unlimited
carryforward period to offset future foreign taxable income.
The following table summarizes the activity related to the
Company’s unrecognized tax benefits:
Beginning balance
Increases related to current year tax positions
Decrease due to lapse of statute
Ending balance
The portion of the unrecognized tax benefits that, if recognized
currently would reduce the annual effective tax rate was $9,731
as of January 1, 2011, $7,588 as of January 2, 2010
and $2,646 as of January 3, 2009. 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 $770
as of January 1, 2011 and $681 as of January 2, 2010.
The Company is subject to periodic audits by domestic and
foreign tax authorities. Currently, the Company is undergoing
routine periodic audits in both domestic and foreign tax
jurisdictions. It is reasonably possible that the amounts of
unrecognized tax benefits could change in the next
12 months as a result of the audits; however, any payment
of tax is not expected to be significant to the consolidated
financial statements.
For the majority of tax jurisdictions, the Company is no longer
subject to U.S. federal, state and local, or
non-U.S. income
tax examinations by tax authorities for years before 2006.
No provision has been made for U.S. federal and state
income taxes or foreign taxes that may result from future
remittances of the remaining undistributed earnings of foreign
subsidiaries of $199,767 at January 1, 2011, as the Company
expects such earnings will remain invested overseas
indefinitely. At January 2, 2010, undistributed foreign
earnings were $163,664.
The Company is involved in various environmental claims and
other legal actions arising in the normal course of business.
The environmental claims include sites where the
U.S. Environmental Protection Agency has notified the
Company that it is a potentially responsible party with respect
to environmental remediation. These remediation claims are
subject to ongoing environmental impact studies, assessment of
remediation alternatives, allocation of costs between
responsible parties and concurrence by regulatory authorities
and have not yet advanced to a stage where the Company’s
liability is fixed. However, after taking into consideration
legal counsel’s evaluation of all actions and claims
against the Company, management is currently of the opinion that
their outcome will not have a material adverse effect on the
Company’s consolidated financial position, results of
operations or cash flows.
The Company is involved in routine litigation incidental to its
business and is a party to legal actions and claims, including,
but not limited to, those related to employment and intellectual
property. Some of the legal proceedings include claims for
compensatory as well as punitive damages. While the final
outcome of these matters cannot be predicted with certainty,
considering, among other things, the meritorious legal defenses
available and liabilities that have been recorded along with
applicable insurance, it is currently the opinion of the
Company’s management that these items will not have a
material adverse effect on the Company’s financial
position, results of operations or cash flows.
The Company has future minimum royalty and advertising
obligations due under the terms of certain licenses held by the
Company. These minimum future obligations are as follows:
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 $3,028, $2,861 and $3,198
for 2010, 2009 and 2008, respectively.
The terms of certain license agreements also require the Company
to make advertising expenditures based on the level of sales. In
accordance with these agreements, the Company incurred
advertising expense of $2,998, $2,682 and $3,018 for 2010, 2009
and 2008, respectively.
The Company had commercial letters of credit outstanding of $95
and $450 at January 1, 2011 and January 2, 2010,
respectively.
The Company has one reportable segment that is engaged in
designing, manufacturing, sourcing, marketing, licensing, and
distributing to the retail sector branded footwear, apparel and
accessories. Revenue earned from the operations of this segment
is derived from the sale of branded footwear, apparel and
accessories to external customers and royalty income from the
licensing of the Company’s trademarks and brand names to
third-party licensees and distributors. The operating segments
aggregated into the branded footwear, apparel and licensing
segment all manufacture, source, market and distribute products
in a similar manner.
The other business units in the following tables consist of the
Company’s retail, leather and pigskin procurement
operations. These other operations do not collectively form a
reportable segment because their respective operations are
dissimilar and they do not meet the applicable quantitative
requirements. At January 1, 2011, the Company operated 81
retail stores in North America and 7 retail stores in the United
Kingdom that sell Company-branded products, as well as footwear,
apparel and accessories products under brands that are owned by
unaffiliated
companies. The Company also has 38 consumer-direct internet
sites that sell Company-branded products. The other business
units distribute products through retail and wholesale channels.
The Company measures segment profits as earnings before income
taxes. The accounting policies used to determine profitability
and total assets of the branded footwear, apparel and licensing
segment and other business units are the same as disclosed in
Note 1.
Business segment information is as follows:
Intersegment revenue
Interest (income) expense – net
Depreciation expense
Earnings (loss) before income taxes
Total assets
Geographic information, based on shipping destination, related
to revenue from external customers included in the consolidated
statements of operations is as follows:
Foreign countries:
Europe
Canada
Total from foreign countries
The Company’s long-lived assets (primarily property, plant
and equipment) are as follows:
Foreign countries
The Company does not believe that it is dependent upon any
single customer because no customer accounts for more than 10%
of consolidated revenue.
The Company sources approximately 94% (based on pairs) of its
footwear products from unrelated suppliers located primarily in
the Asia-Pacific region. The remainder is produced in
Company-owned manufacturing facilities in the United States and
the Dominican Republic. All apparel and accessories are sourced
from unrelated suppliers. While changes in suppliers could cause
delays in manufacturing and a possible loss of sales, management
believes that other suppliers could provide similar products on
comparable terms.
Revenue derived from the branded footwear, apparel and licensing
segment accounted for approximately 90% of revenue in 2010, 90%
in 2009 and 91% in 2008. No other product groups account for
more than 10% of consolidated revenue.
On January 7, 2009, the Board of Directors of the Company
approved a strategic restructuring plan designed to create
significant operating efficiencies, improve the Company’s
supply chain and create a stronger global platform. On
October 7, 2009, the Company announced an expansion of its
restructuring plan to include the consolidation of two domestic
manufacturing facilities into one and to finalize realignment in
certain of the Company’s product creation organizations.
The strategic restructuring plan and all actions under the plan,
except for certain cash payments, were completed as of
June 19, 2010. The Company incurred restructuring and other
transition costs of $4,234 ($3,087 on an after-tax basis) and
$35,596 ($25,700 on an after-tax basis), or $0.06 and $0.53 per
diluted share, for the years ended January 1, 2011 and
January 2, 2010, respectively. There were no restructuring
and other transition costs recognized for the year ended
January 3, 2009.
Restructuring
Prior to completion of the restructuring plan, the Company
incurred restructuring charges of $2,239 ($1,632 on an after-tax
basis) and $29,083 ($20,998 on an after-tax basis) for the years
ended January 1, 2011 and January 2, 2010,
respectively.
The following is a summary of the activity with respect to a
reserve established by the Company in connection with the
restructuring plan, by category of costs:
Charges incurred
Amounts paid or utilized
Other
Transition Costs
Incremental costs incurred related to the restructuring plan
that do not qualify as restructuring costs under the provisions
of FASB ASC Topic 420, Exit or Disposal Cost Obligations,
have been included in the Company’s consolidated condensed
statements of operations on the line items titled
“Restructuring and other transition costs”. These
primarily include costs related to closure of facilities, new
employee training and transition to outsourced services. All
costs included in this caption were solely related to the
transition and implementation of the restructuring plan and do
not include ongoing business operating costs. Other transition
costs for the years ended January 1, 2011, and
January 2, 2010, were, $1,995 ($1,454 on an after-tax
basis) and $6,513 ($4,702 on an after-tax basis), respectively.
The Company accounted for the following acquisitions under the
provisions of FASB ASC Topic 805, Business Combinations.
On January 8, 2009, the Company announced the acquisition
of the
Cushe®
footwear brand. The purchase price consisted of $1,550 cash, a
$1,550 note payable over three years and contingent
consideration of $881. The Company acquired assets valued at
$287, consisting primarily of property, plant and equipment,
inventory, and assumed operating liabilities valued at $304,
resulting in goodwill and intangibles of $3,998 at
January 2, 2010. Amounts relating to the acquisition are
subject to changes in foreign currency exchange rates.
On January 22, 2009, the Company acquired the
Chaco®
footwear brand and certain assets valued at $3,912, consisting
primarily of accounts receivable and inventory, for cash of
$6,910 and assumed operating liabilities valued at $4,662. The
purchase resulted in goodwill and intangibles recorded of $7,660.
Using the purchase method of accounting, the purchase price in
each of these acquisitions is allocated to the assets acquired
and liabilities assumed based on their estimated fair values as
of the effective date of the acquisition. The excess purchase
price over the assets and liabilities is recorded as goodwill.
The purchase price allocation for each acquisition was finalized
during the third quarter of 2009 and a final determination of
all purchase accounting adjustments was made upon finalization
of asset valuations and acquisition costs. Pro forma results of
operations have not been presented because the effects of these
acquisitions, individually and in the aggregate, were not
material to the Company’s consolidated results of
operations. Both of the brands have been consolidated into the
Company’s results of operations since their respective
acquisition dates.
The Company reports its quarterly results of operations on the
basis of 12-week periods for each of the first three quarters
and a 16- or 17-week period for the fourth quarter. The fourth
quarters of 2010 and 2009 consist of 16 weeks. The
aggregate quarterly earnings per share amounts disclosed in the
table below may not equal the annual per share amounts due to
rounding and the fact that results for each quarter are
calculated independently of the annual period.
The Company’s unaudited quarterly results of operations are
as follows:
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Wolverine World Wide,
Inc.
We have audited the accompanying consolidated balance sheets of
Wolverine World Wide, Inc. and subsidiaries as of
January 1, 2011 and January 2, 2010, and the related
consolidated statements of stockholders’ equity and
comprehensive income, operations, and cash flows for each of the
three fiscal years in the period ended January 1, 2011. Our
audits also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Wolverine World Wide, Inc. and
subsidiaries at January 1, 2011 and January 2, 2010,
and the consolidated results of their operations and their cash
flows for each of the three fiscal years in the period ended
January 1, 2011, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Wolverine World Wide, Inc.’s internal control over
financial reporting as of January 1, 2011, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 2, 2011
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Grand Rapids, Michigan
March 2, 2011
We have audited Wolverine World Wide, Inc.’s internal
control over financial reporting as of January 1, 2011,
based on criteria established in Internal
Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Wolverine World Wide, Inc.’s management is
responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Wolverine World Wide, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of January 1, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Wolverine World Wide, Inc.
and subsidiaries as of January 1, 2011 and January 2,
2010, and the related consolidated statements of
stockholders’ equity and comprehensive income, operations,
and cash flows for each of the three fiscal years in the period
ended January 1, 2011 of Wolverine World Wide, Inc. and our
report dated March 2, 2011 expressed an unqualified opinion
thereon.
APPENDIX B
Schedule II -
Valuation and Qualifying Accounts
Wolverine
World Wide, Inc. and Subsidiaries
Fiscal year ended January 1, 2011
Deducted from asset accounts:
Allowance for doubtful accounts
Allowance for sales returns
Allowance for cash discounts
Inventory valuation allowances
Fiscal year ended January 2, 2010
Fiscal year ended January 3, 2009
EXHIBIT INDEX
|
Exhibit |
||||
| Number | Document | |||
| 10 | .15 | Amended and Restated Benefit Trust Agreement dated April 25, 2007.* Previously filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on April 25, 2007. Here incorporated by reference. | ||
| 10 | .16 | Employees’ Pension Plan (Restated as amended through November 29, 2010).* | ||
| 10 | .17 | Form of Incentive Stock Option Agreement.* Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .18 | Form of Non-Qualified Stock Option Agreement for Blake W. Krueger and Timothy J. O’Donovan.* Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .19 | Form of Non-Qualified Stock Option Agreement for executive officers other than those to whom Exhibit 10.18 applies.* Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .20 | Form of Restricted Stock Agreement.* Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 15, 2005. Here incorporated by reference. | ||
| 10 | .21 | Form of Incentive Stock Option Agreement.* Previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .22 | Form of Non-Qualified Stock Option Agreement for Blake W. Krueger and Timothy J. O’Donovan.* Previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .23 | Form of Non-Qualified Stock Option Agreement for executive officers other than those to whom Exhibit 10.22 applies.* Previously filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .24 | Form of Restricted Stock Agreement.* Previously filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 17, 2006. Here incorporated by reference. | ||
| 10 | .25 | Form of Stock Option Agreement for non-employee directors.* Previously filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005. Here incorporated by reference. | ||
| 10 | .26 | 2009 Form of Non-Qualified Stock Option Agreement for Donald T. Grimes, Blake W. Krueger, Pamela L. Linton, Michael F. McBreen and James D. Zwiers.* Previously filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. Here incorporated by reference. | ||
| 10 | .27 | 2009 Form of Non-Qualified Stock Option Agreement for executive officers other than those to whom Exhibit 10.26 applies.* Previously filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. Here incorporated by reference. | ||
| 10 | .28 | Form of Performance Share Award Agreement (2009 — 2011 performance period).* Previously filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. Here incorporated by reference. | ||
| 10 | .29 | Form of Performance Share Award Agreement (2010 — 2012 performance period).* Previously filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2010. Here incorporated by reference. | ||
| 10 | .30 | Form of Performance Share Award Agreement (2011 — 2013 performance period).* | ||
| 10 | .31 | Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of March 13, 2008, as amended.* Previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 22, 2008. Here incorporated by reference. | ||
| 10 | .32 | First Amendment to Separation Agreement between Wolverine World Wide, Inc. and Blake W. Krueger, dated as of December 11, 2008.* Previously filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2009. Here incorporated by reference. | ||