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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended January 1,
2011
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission File Number:
001-6024
WOLVERINE WORLD WIDE,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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38-1185150
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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9341 Courtland Drive N.E.,
Rockford, Michigan
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49351
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone number, including area code:
(616) 866-5500
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act:
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Title of each class
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Name of each exchange on which
registered
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Common Stock, $1 Par Value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No o
Indicate by check mark whether the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or
any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the registrants voting stock
held by non-affiliates of the registrant based on the closing
price on the New York Stock Exchange on June 18, 2010,
the last business day of the registrants most recently
completed second fiscal quarter: $1,398,615,588.
Number of shares outstanding of the registrants Common
Stock, $1 par value as of February 25, 2011:
49,613,399.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the
registrants annual stockholders meeting to be held
April 21, 2011 are incorporated by reference into
Part III of this report.
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 managements 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 Companys performance to
differ materially from what is expressed in forward-looking
statements include:
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changes in national, regional or global economic and market
conditions;
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the impact of financial and credit markets on the Company, its
suppliers and customers;
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changes in interest rates, tax laws, duties, tariffs, quotas or
applicable assessments in countries of import and export;
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the impact of regulation, regulatory and legal proceedings, and
legal compliance risks;
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currency fluctuations;
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increases in costs of future pension funding requirements;
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the risks of doing business in developing countries, and
politically or economically volatile areas;
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the ability to secure and protect owned intellectual property or
use currently licensed intellectual property;
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changes in consumer preferences, spending patterns, buying
patterns, or demand for the Companys products;
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changes in relationships with, including the loss of,
significant customers;
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the exercise of future purchase options by the
U.S. Department of Defense on previously awarded contracts;
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the cost, availability and management of raw materials,
inventories, services, labor, and contract manufacturers;
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service interruptions at shipping and receiving ports;
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the ability to adapt and compete in global footwear, apparel and
consumer-direct markets;
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strategic actions, including acquisitions and dispositions, and
our success in integrating acquired businesses;
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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.
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PART I
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 Companys
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
Companys 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 Companys 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
Companys 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 Companys Global Operations Group is responsible for
manufacturing, sourcing, distribution and customer support for
the Companys 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
Companys 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
Companys other operating segments consist of its
consumer-direct operations and leather and pigskin procurement
operations, which are described below. Financial information
regarding the Companys 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
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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 Companys branded footwear, apparel, and licensing
operating segments for fiscal 2010 are described below.
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The Outdoor Group The Outdoor Group
consists of
Merrell®
Footwear,
Merrell®
Apparel and Accessories,
Patagonia®
Footwear and
Chaco®
Footwear. Outdoor Group products include performance outdoor and
hiking footwear, casual and after-sport footwear and performance
and casual
Merrell®
apparel.
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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®
footwears 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.
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Wolverine Footwear Group The Wolverine
Footwear Group markets footwear, apparel and accessories
products under the
Wolverine®
brand and footwear under the
Bates®
and
HyTest®
brands. Wolverine Footwear Group products incorporate
performance and comfort features to serve a variety of work,
outdoor and lifestyle functions.
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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
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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 Divisions 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
Companys occupational and work footwear brands to workers
at industrial facilities and also through direct sales
arrangements with large industrial customers.
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The Heritage Brands Group The Heritage
Brands Group consists of
Cat®
Footwear,
Harley-Davidson®
Footwear and the
Sebago®
product line.
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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.
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The Hush Puppies Group
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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 womens 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.
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Wolverine Retail The Companys
consumer-direct business operates 81 North American and
7 United Kingdom-based retail stores as of February 2011.
These stores are operated under the Hush
Puppies®,
Hush Puppies and
FamilySM,
TrackN
Trail®,
Rockford Footwear
Depot®
and
Merrell®
names. The Rockford Footwear
Depot®,
TrackN
Trail®,
Hush
Puppies®
and Hush Puppies and
FamilySM
retail formats carry a large selection of Company-branded
products, featuring such brands as
Wolverine®,
Merrell®,
Hush
Puppies®,
Cat®,
Chaco®,
Cushe®,
Patagonia®,
Sebago®
and
Harley-Davidson®.
The Company also operates
Merrell®
concept stores and Hush
Puppies®
concept stores, providing a platform to showcase these brands
exclusively. In addition, the Company operates 38
consumer-direct retail websites, including, www.merrell.com,
www.wolverine.com, www.hushpuppies.com, www.chacousa.com,
www.cushe.com, www.catfootwear.com, www.sebago.com, and
www.batesfootwear.com.
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The Wolverine Leathers Division The
Wolverine Leathers Division markets pigskin leather primarily
for use in the footwear industry. The Company believes pigskin
leather offers superior performance and other advantages over
cowhide leather. The Companys waterproof and stain
resistant leathers are featured in some of the Companys
footwear lines and many products offered by the Companys
international licensees and distributors.
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3.
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Wolverine Procurement, Inc. Wolverine
Procurement, Inc. performs skinning operations and purchases raw
pigskins from third parties, which it cures and sells to outside
customers for processing into pigskin leather products.
Substantially all of the assets of Wolverine Procurement, Inc.
were sold to a third-party buyer on December 29, 2010.
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Marketing
The Companys 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 Companys 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
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strive to increase awareness of, and affinity for, the
Companys brands. The Companys advertisements
typically emphasize fashion, comfort, quality, durability,
functionality and other performance and lifestyle aspects of the
Companys 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 Companys 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:
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The Company uses a dedicated sales force and customer service
team, advertising and
point-of-purchase
support and maintains in-stock inventories to service
consumer-direct business, department stores, national chains,
specialty retailers, catalogs, independent retailers and uniform
outlets.
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Volume direct programs ship products directly to the retail
customer without going through a Company distribution center and
provide products at competitive prices with limited marketing
support. The Company uses these programs to service major
retail, catalogs, mass merchant and government customers.
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A network of independent
Shoemobile®
distribution outlets distributes the Companys work and
occupational footwear at industrial facilities.
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The Company solicits all branches of the United States military
and submits bids for contracts to supply specific footwear
products. Such contracts typically contain future purchase
options that are not required to be exercised.
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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 Companys 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 Companys 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 Companys foreign-sourced revenue is generated from a
combination of (i) sales of branded footwear and apparel
through the Companys 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 Companys 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
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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
Companys brand names. The balance is controlled directly
by the Companys 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 Companys
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys results of operations and
financial position.
9
Trademarks,
Licenses and Patents
The Company holds a significant portfolio of registered and
common law trademarks that identify its branded products. The
Companys 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 Companys 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
Companys 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 Companys continuing
relationship with the Biomechanics Evaluation Laboratory at
Michigan
10
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
Companys 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 Companys 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 Companys 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 SECs
website at www.sec.gov.
Changes in general economic conditions and other factors
affecting consumer spending could adversely affect the
Companys sales, operating results or financial position
The Companys 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 Companys 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 Companys 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
Companys products could reduce the Companys revenues
or profit margins.
11
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
Companys cost of sales and operating expenses. Such
increases could adversely affect the Companys 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 Companys
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 Companys 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
Companys 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 Companys
results of operations and financial position could be adversely
affected if the Companys businesses are not successful.
The Companys operating results depend on effectively
managing inventory levels.
The Companys ability to manage its inventories effectively
is an important factor in its operations. Inventory shortages
can impede the Companys 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 Companys
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 Companys
sales and profitability.
All of the Companys 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 Companys 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 Companys
third-party
distributors and licensees operate, could result in increases in
the cost of the Companys 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 Companys 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.
12
Foreign currency exchange rate fluctuations could adversely
impact the Companys business.
Foreign currency fluctuations affect the Companys reported
revenue and profitability. In addition, because the Company may
employ hedging strategies over time, changes in currency
exchange rates may impact the Companys financial results
positively or negatively in one period and not another, which
may make it difficult to compare the Companys operating
results from different periods. Currency exchange rate
fluctuations may also adversely impact third parties who
manufacture the Companys 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 Companys
operating costs and adversely impact the competitive position of
the Companys 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 Companys 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
Companys 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
Chinas manufacturing capacity away from footwear and
apparel to other industries. Any of these events could have an
adverse effect on the Companys business, results of
operations and financial position and in particular on the
Companys ability to meet customer demands and produce its
products in a cost-effective manner.
The Companys 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 Companys shipping costs. Increases in cost for
services and materials used in production could have a negative
impact on the Companys 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 Companys cost of raw materials for its
leather business and, as a result, have a negative impact on the
Companys results of operations and financial position.
A significant reduction in customer purchases of the
Companys products or failure of customers to pay for the
Companys products in a timely manner could adversely
affect the Companys business.
The Companys 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 Companys customers are generally on an
order-by-order
basis and are subject to rights of cancellation and rescheduling
by the customers.
13
Failure to fill customers orders in a timely manner could
harm the Companys relationships with its customers.
Furthermore, if any of the Companys major customers
experience a significant downturn in its business, or fail to
remain committed to the Companys products or brands, they
may reduce or discontinue purchases from the Company, which
could have an adverse effect on the Companys results of
operations and financial position.
The Company sells its products to customers and extends credit
based on an evaluation of each customers 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 Companys 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 Companys 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 Companys
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 Companys 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 Companys results of operations and financial
position.
Changes in the credit markets could adversely affect the
Companys financial success.
Changes in credit markets could adversely impact the
Companys future results of operations and financial
position. If the Companys 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 Companys products, or fail to meet their obligations
to the Company in a timely manner, either of which could
adversely impact the Companys sales, cash flow and
operating results. In addition, any lack of available credit
and/or the
increased cost of credit may significantly impair the
Companys 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 Companys future revenues.
The federal government has the right to audit the Companys
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 Companys 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 Companys 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
Companys results of operations and financial position.
14
Failure of the Companys international licensees and
distributors to meet sales goals or to make timely payments on
amounts owed to the Company could adversely affect the
Companys financial performance.
In many international markets, independent licensees or
distributors sell the Companys products. Failure by the
Companys 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 Companys
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 Companys reputation and competitive position are
dependent on its third-party manufacturers, distributors,
licensees and others complying with applicable laws and the
Companys ethical standards.
The Company requires its independent contract manufacturers,
distributors, licensees and others with which it does business
to comply with the Companys 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 Companys 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 Companys 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 Companys 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 Companys assets and
operations in a developing country by local government
authorities; slower payment of invoices; and restrictions on the
Companys 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 Companys 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 Companys 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 Companys
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
managements attention from operating the Companys
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 Companys 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
15
termination of any of these license agreements by the licensor
could have a material adverse effect on the Companys
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 Companys 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 partys products on the basis
of infringement of the Companys intellectual property
rights, continued sales of these products could adversely affect
the Companys sales, devalue its brands and result in the
shift of consumer preference away from the Companys
products.
The Companys 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 Companys 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 Companys 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 Companys 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 Companys
overall employment costs. The Companys employment costs
include costs relating to health care benefits and benefits
under the Companys 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 Companys
overall employment and pension costs could have an adverse
effect on the Companys business, results of operations and
financial position.
Disruption of the Companys technology systems could
adversely affect the Companys business.
The Companys 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 Companys 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 Companys
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 Companys 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 managements attention from
other aspects of the Companys business operations.
Acquisitions may also result in incurrence of debt, dilutive
issuances of the Companys 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
Companys results of operations and financial position.
16
Maintenance and growth of the Companys business depends
upon the availability of adequate capital.
The maintenance and growth of the Companys 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 Companys brands into new markets may be
difficult and costly, and unsuccessful efforts to do so may
adversely affect the Companys 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 Companys results of operations and financial position.
Changes in government regulation may increase the costs of
compliance.
The Companys 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 Companys 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 Companys 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 Companys 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 Companys certificate
of incorporation and bylaws could prevent or delay a change in
control or change in management that could be beneficial to the
Companys stockholders.
Provisions of the Companys 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 Companys common stock.
The market price and volume of the Companys 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 Companys financial condition and
results of operations, a change in sentiment in the market
regarding the Companys business prospects or from other
factors, many of which may be outside the Companys
control. Changes in the amounts and frequency of share
repurchases or dividends could adversely affect the value of the
Companys common stock.
17
|
|
Item 1B.
|
Unresolved
Staff Comments
|
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 Companys 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.
|
|
Item 3.
|
Legal
Proceedings
|
The Company is involved in litigation and various legal matters
arising in the normal course of business, including certain
environmental compliance activities. The Company has considered
facts related to legal and regulatory matters and opinions of
counsel handling these matters, and does not believe the
ultimate resolution of such proceedings will have a material
adverse effect on the Companys financial position, results
of operations, or cash flows.
18
Supplemental
Item. Executive Officers of the Registrant
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.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Positions held with the
Company
|
|
Kenneth A. Grady
|
|
|
54
|
|
|
General Counsel and Secretary
|
Donald T. Grimes
|
|
|
48
|
|
|
Senior Vice President, Chief Financial Officer and Treasurer
|
Robin J. Kleinjans-McKee
|
|
|
35
|
|
|
Corporate Controller
|
Blake W. Krueger
|
|
|
57
|
|
|
Chairman, Chief Executive Officer and President
|
Pamela L. Linton
|
|
|
61
|
|
|
Senior Vice President, Global Human Resources
|
Michael F. McBreen
|
|
|
45
|
|
|
President, Global Operations Group
|
Michael D. Stornant
|
|
|
44
|
|
|
Vice President, Corporate Planning and Analysis
|
James D. Zwiers
|
|
|
43
|
|
|
Senior Vice President and President, Outdoor Group
|
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
Companys 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
19
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 Wolverines 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 Companys Hush Puppies U.S. Division.
From October 2005 to October 2006, he served as the
Companys 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.
|
|
Item 4.
|
(Removed
and Reserved)
|
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer
Purchases of Equity Securities
|
The Companys 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
29.76
|
|
|
$
|
23.51
|
|
|
$
|
21.87
|
|
|
$
|
13.15
|
|
|
|
|
|
|
|
|
|
Second quarter
|
|
$
|
32.38
|
|
|
$
|
26.33
|
|
|
$
|
23.90
|
|
|
$
|
15.26
|
|
|
|
|
|
|
|
|
|
Third quarter
|
|
$
|
29.99
|
|
|
$
|
24.25
|
|
|
$
|
27.25
|
|
|
$
|
21.06
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
33.00
|
|
|
$
|
26.89
|
|
|
$
|
28.31
|
|
|
$
|
23.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Declared Per
Share
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
First quarter
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
|
|
|
Second quarter
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
|
|
|
Third quarter
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
|
|
|
Fourth quarter
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
|
|
|
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 Companys credit agreement imposes certain restrictions
on the Companys 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
Companys equity compensation plans.
20
Stock
Performance Graph
The following graph compares the five year cumulative total
stockholder return on Wolverine common stock to the
Standard & Poors Small Cap 600 Index and the
Standard & Poors 600 Footwear Index, assuming an
investment of $100 at the beginning of the period indicated.
Wolverine is part of the Standard & Poors Small
Cap 600 Index and the Standard & Poors Footwear
Index. This Stock Performance Graph shall not be deemed to be
incorporated by reference into the Companys 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.
21
The following table provides information regarding the
Companys purchases of its own common stock during the
fourth quarter of fiscal 2010:
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Maximum
|
|
|
|
|
|
|
|
Purchased
|
|
|
Dollar Amount
|
|
|
|
|
|
|
|
as Part of
|
|
|
that
|
|
|
|
Total
|
|
|
|
Publicly
|
|
|
May Yet
|
|
|
|
Number of
|
|
Average
|
|
Announced
|
|
|
Be Purchased
|
|
|
|
Shares
|
|
Price Paid
|
|
Plans or
|
|
|
Under the Plans
|
|
Period
|
|
Purchased
|
|
per Share
|
|
Programs
|
|
|
or Programs
|
|
|
|
Period 1 (September 12, 2010 to October 9, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Repurchase
Program(1)
|
|
|
|
$
|
|
|
|
|
|
$
|
154,110,117
|
|
Employee
Transactions(2)
|
|
178
|
|
28.95
|
|
|
|
|
|
|
|
|
Period 2 (October 10, 2010 to November 6, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Repurchase
Program(1)
|
|
|
|
$
|
|
|
|
|
|
$
|
154,110,117
|
|
Employee
Transactions(2)
|
|
308
|
|
29.55
|
|
|
|
|
|
|
|
|
Period 3 (November 7, 2010 to December 4, 2010)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Repurchase
Program(1)
|
|
|
|
$
|
|
|
|
|
|
$
|
154,110,117
|
|
Employee
Transactions(2)
|
|
3,274
|
|
31.89
|
|
|
|
|
|
|
|
|
Period 4 (December 5, 2010 to January 1, 2011)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Repurchase
Program(1)
|
|
|
|
$
|
|
|
|
|
|
$
|
154,110,117
|
|
Employee
Transactions(2)
|
|
21,176
|
|
31.40
|
|
|
|
|
|
|
|
|
Total for Fourth Quarter ended January 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Repurchase
Program(1)
|
|
|
|
$
|
|
|
|
|
|
$
|
154,110,117
|
|
Employee
Transactions(2)
|
|
24,936
|
|
31.43
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys Board of Directors approved a common stock
repurchase program on February 11, 2010. This program
authorized the repurchase of up to $200.0 million of common
stock over a four-year period, commencing on the effective date
of the program. There were no shares repurchased during fourth
quarter of fiscal 2010, other than repurchases pursuant to the
Employee Transactions set forth above. |
|
(2) |
|
Employee transactions include: (1) shares delivered or
attested in satisfaction of the exercise price and/or tax
withholding obligations by holders of employee stock options who
exercised options, and (2) restricted shares withheld to
offset statutory minimum tax withholding that occurs upon
vesting of restricted shares. The Companys employee stock
compensation plans provide that the shares delivered or attested
to, or withheld, shall be valued at the closing price of the
Companys common stock on the date the relevant transaction
occurs. |
22
|
|
Item 6.
|
Selected
Financial Data
|
Five-Year Operating and Financial Summary
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Thousands of Dollars, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,248,517
|
|
|
$
|
1,101,056
|
|
|
$
|
1,220,568
|
|
|
$
|
1,198,972
|
|
|
$
|
1,141,887
|
|
Net earnings
|
|
|
104,470
|
|
|
|
61,912
|
|
|
|
95,821
|
|
|
|
92,886
|
|
|
|
83,647
|
|
Per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net
earnings(2)(3)
|
|
$
|
2.15
|
|
|
$
|
1.26
|
|
|
$
|
1.94
|
|
|
$
|
1.75
|
|
|
$
|
1.50
|
|
Diluted net
earnings(2)(3)
|
|
|
2.11
|
|
|
|
1.24
|
|
|
|
1.90
|
|
|
|
1.70
|
|
|
|
1.46
|
|
Cash dividends declared
|
|
|
0.44
|
|
|
|
0.44
|
|
|
|
0.44
|
|
|
|
0.36
|
|
|
|
0.30
|
|
Financial Position at Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
786,575
|
|
|
$
|
712,076
|
|
|
$
|
664,780
|
|
|
$
|
638,378
|
|
|
$
|
671,092
|
|
Long-term debt
|
|
|
1,034
|
|
|
|
1,615
|
|
|
|
5
|
|
|
|
10,731
|
|
|
|
21,471
|
|
Notes to
Five-Year Operating and Financial Summary
|
|
|
(1) |
|
This summary should be read in conjunction with the consolidated
financial statements and the related notes, which are attached
as Appendix A to this Annual Report on
Form 10-K. |
|
(2) |
|
Basic earnings per share are based on the weighted average
number of shares of common stock outstanding during the year
after adjustment for nonvested restricted common stock. Diluted
earnings per share assume the exercise of dilutive stock options
and the vesting of all outstanding restricted stock. |
|
(3) |
|
Basic and diluted net earnings per share have been retroactively
adjusted to reflect the adoption of FASB ASC Topic 260,
Earnings Per Share on January 4, 2009, for
participating securities which represent unvested restricted
common stock which contain nonforfeitable rights to dividends or
dividend equivalents. |
23
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
OVERVIEW
BUSINESS OVERVIEW
Wolverine World Wide, Inc. (the Company) is a
leading global designer, manufacturer and marketer of branded
footwear, apparel and accessories. The Companys 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 Companys 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
|
|
|
|
|
The Company ended 2010 with $150.4 million of cash and cash
equivalents and interest-bearing debt of only $1.0 million.
|
|
|
|
Revenue for 2010 was $1.249 billion, 13.4% above 2009
revenue of $1.101 billion, reflecting strong organic growth
from all of the Companys operating divisions.
|
|
|
|
Accounts receivable increased 20.0% in 2010 compared to 2009,
driven primarily by the 23.2% increase in fourth quarter
revenue. Days sales outstanding decreased from 63.3 days in
2009 to 60.5 days in 2010.
|
|
|
|
Inventory increased $50.6 million, or 32.0%, in 2010
compared to 2009, reflecting both the excellent outlook for the
first half of 2011 and strategic purchases ahead of announced
price increases from
third-party
suppliers.
|
|
|
|
Diluted earnings per share for 2010 were $2.11 per share
compared to $1.24 per share for 2009, including the impact of
$0.06 and $0.53 per share of restructuring and other transition
costs in 2010 and 2009, respectively.
|
|
|
|
The full year effective tax rate decreased to 27.1% from 27.8%
in 2009, reflecting the net benefit from adjustments and the
settlement of a foreign tax audit.
|
|
|
|
The Company declared cash dividends of $0.44 per share in 2010,
equal to the total dividends declared in 2009.
|
|
|
|
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.
|
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 Companys
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.
24
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 Companys results of
operations and liquidity and capital resources. This section
should be read in conjunction with the Companys
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
(Millions of Dollars, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Total
|
|
|
$
|
|
|
|
Total
|
|
|
$
|
|
|
%
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded footwear, apparel and licensing
|
|
|
$
|
1,117.6
|
|
|
|
|
89
|
.5%
|
|
|
$
|
991.2
|
|
|
|
|
90
|
.0%
|
|
|
$
|
126
|
.4
|
|
|
|
12
|
.8%
|
Other business units
|
|
|
|
130.9
|
|
|
|
|
10
|
.5%
|
|
|
|
109.9
|
|
|
|
|
10
|
.0%
|
|
|
|
21
|
.0
|
|
|
|
19
|
.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
$
|
1,248.5
|
|
|
|
|
100
|
.0%
|
|
|
$
|
1,101.1
|
|
|
|
|
100
|
.0%
|
|
|
$
|
147
|
.4
|
|
|
|
13
|
.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Revenue
|
|
|
$
|
|
|
|
Revenue
|
|
|
$
|
|
|
%
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded footwear, apparel and licensing
|
|
|
$
|
440.1
|
|
|
|
|
39
|
.4%
|
|
|
$
|
390.8
|
|
|
|
|
39
|
.4%
|
|
|
$
|
49
|
.3
|
|
|
|
12
|
.6%
|
Other business units
|
|
|
|
52.5
|
|
|
|
|
40
|
.1%
|
|
|
|
40.9
|
|
|
|
|
37
|
.2%
|
|
|
|
11
|
.6
|
|
|
|
28
|
.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit
|
|
|
$
|
492.6
|
|
|
|
|
39
|
.5%
|
|
|
$
|
431.7
|
|
|
|
|
39
|
.2%
|
|
|
$
|
60
|
.9
|
|
|
|
14
|
.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
$
|
347.5
|
|
|
|
|
27
|
.8%
|
|
|
$
|
316.4
|
|
|
|
|
28
|
.7%
|
|
|
$
|
31
|
.1
|
|
|
|
9
|
.8%
|
Restructuring and other transition costs
|
|
|
|
2.8
|
|
|
|
|
0
|
.2%
|
|
|
|
29.7
|
|
|
|
|
2
|
.7%
|
|
|
|
(26
|
.9)
|
|
|
|
(90
|
.6%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
$
|
350.3
|
|
|
|
|
28
|
.1%
|
|
|
$
|
346.1
|
|
|
|
|
31
|
.4%
|
|
|
$
|
4
|
.2
|
|
|
|
1
|
.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense net
|
|
|
$
|
0.4
|
|
|
|
|
0
|
.0%
|
|
|
$
|
0.1
|
|
|
|
|
0
|
.0%
|
|
|
$
|
0
|
.3
|
|
|
|
300
|
.0%
|
Other (income) net
|
|
|
|
(1.3
|
)
|
|
|
|
0
|
.1%
|
|
|
|
(0.2
|
)
|
|
|
|
0
|
.0%
|
|
|
|
1
|
.1
|
|
|
|
550
|
.0%
|
Earnings before income taxes
|
|
|
|
143.2
|
|
|
|
|
11
|
.5%
|
|
|
|
85.7
|
|
|
|
|
7
|
.8%
|
|
|
|
57
|
.5
|
|
|
|
67
|
.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
$
|
104.5
|
|
|
|
|
8
|
.4%
|
|
|
$
|
61.9
|
|
|
|
|
5
|
.6%
|
|
|
$
|
42
|
.6
|
|
|
|
68
|
.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
$
|
2.11
|
|
|
|
|
-
|
|
|
|
$
|
1.24
|
|
|
|
|
-
|
|
|
|
$
|
0
|
.87
|
|
|
|
70
|
.2%
|
25
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:
|
|
|
|
|
Outdoor Group, consisting of
Merrell®,
Chaco®
and
Patagonia®
footwear, and
Merrell®
brand apparel;
|
|
|
Wolverine Footwear Group, consisting of
Bates®,
HyTest®,
and
Wolverine®
boots and shoes and
Wolverine®
brand apparel;
|
|
|
Heritage Brands Group, consisting of
Cat®
footwear,
Harley-Davidson®
footwear and
Sebago®
footwear and apparel; and
|
|
|
Hush Puppies Group, consisting of Hush
Puppies®,
Soft
Style®
and
Cushe®.
|
The Companys other operating segments, which do not
collectively comprise a separate reportable segment, consisted
of: Wolverine Retail, the Companys 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
%
|
|
(Millions of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor Group
|
|
|
$
|
467.6
|
|
|
|
|
37.5%
|
|
|
|
$
|
416.2
|
|
|
|
|
37.8%
|
|
|
|
$
|
51.4
|
|
|
|
|
12.3%
|
|
Wolverine Footwear Group
|
|
|
|
274.9
|
|
|
|
|
22.0%
|
|
|
|
|
233.2
|
|
|
|
|
21.2%
|
|
|
|
|
41.7
|
|
|
|
|
17.9%
|
|
Heritage Brands Group
|
|
|
|
222.3
|
|
|
|
|
17.8%
|
|
|
|
|
198.3
|
|
|
|
|
18.0%
|
|
|
|
|
24.0
|
|
|
|
|
12.1%
|
|
Hush Puppies Group
|
|
|
|
140.3
|
|
|
|
|
11.2%
|
|
|
|
|
131.6
|
|
|
|
|
12.0%
|
|
|
|
|
8.7
|
|
|
|
|
6.6%
|
|
Other
|
|
|
|
12.5
|
|
|
|
|
1.0%
|
|
|
|
|
11.9
|
|
|
|
|
1.1%
|
|
|
|
|
0.6
|
|
|
|
|
5.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total branded footwear, apparel
and licensing revenue
|
|
|
$
|
1,117.6
|
|
|
|
|
89.5%
|
|
|
|
$
|
991.2
|
|
|
|
|
90.0%
|
|
|
|
$
|
126.4
|
|
|
|
|
12.8%
|
|
Other business units
|
|
|
|
130.9
|
|
|
|
|
10.5%
|
|
|
|
|
109.9
|
|
|
|
|
10.0%
|
|
|
|
|
21.0
|
|
|
|
|
19.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
$
|
1,248.5
|
|
|
|
|
100.0%
|
|
|
|
$
|
1,101.1
|
|
|
|
|
100.0%
|
|
|
|
$
|
147.4
|
|
|
|
|
13.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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®
brands 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®
Footwears 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 brands 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 brands core work business as well
as significant growth in the rugged casual business. The
Bates®
footwear business
26
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®
Footwears 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 Companys other business units, Wolverine Retail
reported a sales increase in the mid teens compared to 2009 as a
result of growth from the Companys
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 Companys 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 Wolverines 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 Companys 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
Companys 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.
27
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Change
|
|
(Millions of Dollars, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
%
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded footwear, apparel and licensing
|
|
|
$
|
991.2
|
|
|
|
|
90.0%
|
|
|
|
$
|
1,106.1
|
|
|
|
|
90.6%
|
|
|
|
$
|
(114.9
|
)
|
|
|
|
(10.4%
|
)
|
Other business units
|
|
|
|
109.9
|
|
|
|
|
10.0%
|
|
|
|
|
114.5
|
|
|
|
|
9.4%
|
|
|
|
|
(4.6
|
)
|
|
|
|
(4.0%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
$
|
1,101.1
|
|
|
|
|
100.0%
|
|
|
|
$
|
1,220.6
|
|
|
|
|
100.0%
|
|
|
|
$
|
(119.5
|
)
|
|
|
|
(9.8%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Revenue
|
|
|
|
$
|
|
|
|
Revenue
|
|
|
|
$
|
|
|
|
%
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded footwear, apparel and licensing
|
|
|
$
|
390.8
|
|
|
|
|
39.4%
|
|
|
|
$
|
444.7
|
|
|
|
|
40.2%
|
|
|
|
$
|
(53.9
|
)
|
|
|
|
(12.1%
|
)
|
Other business units
|
|
|
|
40.9
|
|
|
|
|
37.2%
|
|
|
|
|
41.3
|
|
|
|
|
36.1%
|
|
|
|
|
(0.4
|
)
|
|
|
|
(0.9%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit
|
|
|
$
|
431.7
|
|
|
|
|
39.2%
|
|
|
|
$
|
486.0
|
|
|
|
|
39.8%
|
|
|
|
$
|
(54.3
|
)
|
|
|
|
(11.2%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
$
|
316.4
|
|
|
|
|
28.7%
|
|
|
|
$
|
345.2
|
|
|
|
|
28.3%
|
|
|
|
$
|
(28.8
|
)
|
|
|
|
(8.3%
|
)
|
Restructuring and other transition costs
|
|
|
|
29.7
|
|
|
|
|
2.7%
|
|
|
|
|
-
|
|
|
|
|
0.0%
|
|
|
|
|
29.7
|
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
$
|
346.1
|
|
|
|
|
31.4%
|
|
|
|
$
|
345.2
|
|
|
|
|
28.3%
|
|
|
|
$
|
0.9
|
|
|
|
|
0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense net
|
|
|
$
|
0.1
|
|
|
|
|
0.0%
|
|
|
|
$
|
1.1
|
|
|
|
|
0.1%
|
|
|
|
$
|
(1.0
|
)
|
|
|
|
(89.8%
|
)
|
Other (income) net
|
|
|
|
(0.2
|
)
|
|
|
|
0.0%
|
|
|
|
|
(0.9
|
)
|
|
|
|
0.1%
|
|
|
|
|
0.7
|
|
|
|
|
78.3%
|
|
Earnings before income taxes
|
|
|
|
85.7
|
|
|
|
|
7.8%
|
|
|
|
|
140.6
|
|
|
|
|
11.5%
|
|
|
|
|
(54.9
|
)
|
|
|
|
(39.0%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings
|
|
|
$
|
61.9
|
|
|
|
|
5.6%
|
|
|
|
$
|
95.8
|
|
|
|
|
7.9%
|
|
|
|
$
|
(33.9
|
)
|
|
|
|
(35.4%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
$
|
1.24
|
|
|
|
|
-
|
|
|
|
$
|
1.90
|
|
|
|
|
-
|
|
|
|
$
|
(0.66
|
)
|
|
|
|
(34.7%
|
)
|
28
The following is supplemental information on total revenue:
TOTAL
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
Total
|
|
|
|
$
|
|
|
|
%
|
|
(Millions of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor Group
|
|
|
$
|
416.2
|
|
|
|
|
37.8%
|
|
|
|
$
|
428.4
|
|
|
|
|
35.1%
|
|
|
|
$
|
(12.2
|
)
|
|
|
|
(2.8%
|
)
|
Wolverine Footwear Group
|
|
|
|
233.2
|
|
|
|
|
21.2%
|
|
|
|
|
261.9
|
|
|
|
|
21.5%
|
|
|
|
|
(28.7
|
)
|
|
|
|
(10.9%
|
)
|
Heritage Brands Group
|
|
|
|
198.3
|
|
|
|
|
18.0%
|
|
|
|
|
242.3
|
|
|
|
|
19.8%
|
|
|
|
|
(44.0
|
)
|
|
|
|
(18.2%
|
)
|
Hush Puppies Group
|
|
|
|
131.6
|
|
|
|
|
12.0%
|
|
|
|
|
160.9
|
|
|
|
|
13.2%
|
|
|
|
|
(29.3
|
)
|
|
|
|
(18.2%
|
)
|
Other
|
|
|
|
11.9
|
|
|
|
|
1.1%
|
|
|
|
|
12.6
|
|
|
|
|
1.0%
|
|
|
|
|
(0.7
|
)
|
|
|
|
(6.1%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total branded footwear, apparel and licensing revenue
|
|
|
$
|
991.2
|
|
|
|
|
90.0%
|
|
|
|
$
|
1,106.1
|
|
|
|
|
90.6%
|
|
|
|
$
|
(114.9
|
)
|
|
|
|
(10.4%
|
)
|
Other business units
|
|
|
|
109.9
|
|
|
|
|
10.0%
|
|
|
|
|
114.5
|
|
|
|
|
9.4%
|
|
|
|
|
(4.6
|
)
|
|
|
|
(4.0%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
$
|
1,101.1
|
|
|
|
|
100.0%
|
|
|
|
$
|
1,220.6
|
|
|
|
|
100.0%
|
|
|
|
$
|
(119.5
|
)
|
|
|
|
(9.8%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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®
brands 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
brands international markets.
Patagonia®
Footwears 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 groups
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 brands
target consumers.
The Heritage Brands Group recorded revenue of
$198.3 million during 2009, a $44.0 million decrease
over 2008.
Cat®
Footwears revenue decreased at a rate in the low twenties
compared to 2008, reflecting challenging economic conditions in
many of the brands 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 brands 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
29
production delays at third-party factories. Revenue generated by
the
Cushe®
brand, acquired in early fiscal 2009, partially offset these
revenue declines.
Within the Companys other business units, Wolverine Retail
reported a high single-digit sales increase versus 2008 as a
result of growth from the Companys
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
Companys 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
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
Companys restructuring and cost-savings initiatives and
decreases in certain operating expenses that vary with revenue,
such as selling commissions and distribution costs.
INTEREST,
OTHER AND TAXES
The decrease in net interest expense reflected lower outstanding
debt as a result of the repayment in full of the Companys
senior notes during the fourth quarter of 2008 and lower average
balances outstanding on the Companys 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 Companys 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
Companys strategic restructuring plan, the cumulative full
year benefits from various tax planning strategies related
primarily to the Companys international operations and a
higher percentage of the Companys 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
$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.
Inflation did not have a significant impact on revenue or net
earnings.
30
LIQUIDITY
AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
January 2,
|
|
|
|
Change
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
$
|
|
|
%
|
(Millions of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
150.4
|
|
|
|
$
|
160.4
|
|
|
|
$
|
(10
|
.0)
|
|
|
|
(6
|
.2%)
|
Accounts receivable
|
|
|
|
196.5
|
|
|
|
|
163.8
|
|
|
|
|
32
|
.7
|
|
|
|
20
|
.0%
|
Inventories
|
|
|
|
208.7
|
|
|
|
|
158.1
|
|
|
|
|
50
|
.6
|
|
|
|
32
|
.0%
|
Accounts payable
|
|
|
|
64.1
|
|
|
|
|
42.3
|
|
|
|
|
21
|
.8
|
|
|
|
51
|
.5%
|
Current accrued liabilities
|
|
|
|
77.1
|
|
|
|
|
86.3
|
|
|
|
|
(9
|
.2)
|
|
|
|
(10
|
.7%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing debt
|
|
|
|
1.0
|
|
|
|
|
1.6
|
|
|
|
|
(0
|
.6)
|
|
|
|
(37
|
.5%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
|
67.9
|
|
|
|
|
168.6
|
|
|
|
|
(100
|
.7)
|
|
|
|
(59
|
.7%)
|
Additions to property, plant and equipment
|
|
|
|
16.4
|
|
|
|
|
11.7
|
|
|
|
|
4
|
.7
|
|
|
|
40
|
.2%
|
Depreciation and amortization
|
|
|
|
16.2
|
|
|
|
|
17.6
|
|
|
|
|
(1
|
.4)
|
|
|
|
(8
|
.0%)
|
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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
31
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
Companys 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Cumulative
|
|
|
|
(Thousands of Dollars, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price
|
|
|
|
Market price
|
|
|
|
Market price
|
|
|
Authorization
|
|
Shares
|
|
of shares
|
|
Shares
|
|
of shares
|
|
Shares
|
|
of shares
|
|
|
effective date
|
|
repurchased
|
|
repurchased
|
|
repurchased
|
|
repurchased
|
|
repurchased
|
|
repurchased
|
|
|
|
April 19, 2007
|
|
199,996
|
|
$
|
5,304
|
|
|
|
406,200
|
|
|
$
|
5,593
|
|
|
|
7,000,000
|
|
|
$
|
180,802
|
|
|
|
|
|
February 11, 2010
|
|
1,595,151
|
|
$
|
45,890
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,595,151
|
|
|
$
|
45,890
|
|
|
|
|
|
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 Companys 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 Companys
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
32
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 Companys 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 Companys 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
Companys 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
Companys 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 Companys 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 Companys expectations. Adjustments to these
estimates may be required if the financial condition of the
Companys 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
Companys 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.
33
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 Companys 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 Companys 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 managements 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 Companys 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 Companys 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
34
rate, expected long-term rate of return on plan assets and rates
of increase in compensation. These assumptions are reviewed with
the Companys actuaries and updated annually based on
relevant external and internal factors and information,
including but not limited to, long-term expected asset returns,
rates of termination, regulatory requirements and plan changes.
The Company utilizes a bond matching calculation to determine
the discount rate used to calculate its year-end pension
liability and subsequent year pension expense. A hypothetical
bond portfolio is created based on a presumed purchase of
individual bonds to settle the plans expected future
benefit payments. The discount rate is the resulting yield of
the hypothetical bond portfolio. The bonds selected are 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
Companys 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 Companys
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 Companys 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 Companys reported results are subject to
foreign currency exposure for this stream of revenue and
expenses.
35
Assets and liabilities outside the United States are primarily
located in the United Kingdom, Canada and the Netherlands. The
Companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
118,134
|
|
|
|
16,926
|
|
|
|
28,138
|
|
|
|
23,387
|
|
|
|
49,683
|
|
Short- and long-term debt obligations
|
|
|
1,034
|
|
|
|
517
|
|
|
|
517
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
obligations (1)
|
|
|
206,889
|
|
|
|
206,889
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Restructuring related obligations
|
|
|
441
|
|
|
|
441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deferred compensation
|
|
|
738
|
|
|
|
172
|
|
|
|
324
|
|
|
|
63
|
|
|
|
179
|
|
Pension (2)
|
|
|
31,800
|
|
|
|
31,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
SERP
|
|
|
27,048
|
|
|
|
1,961
|
|
|
|
3,955
|
|
|
|
5,982
|
|
|
|
15,150
|
|
Dividends declared
|
|
|
5,925
|
|
|
|
5,925
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Minimum royalties
|
|
|
6,275
|
|
|
|
1,693
|
|
|
|
1,778
|
|
|
|
1,850
|
|
|
|
954
|
|
Minimum advertising
|
|
|
12,554
|
|
|
|
1,941
|
|
|
|
4,058
|
|
|
|
4,305
|
|
|
|
2,250
|
|
|
|
Total (3)
|
|
$
|
410,838
|
|
|
$
|
268,265
|
|
|
$
|
38,770
|
|
|
$
|
35,587
|
|
|
$
|
68,216
|
|
|
|
|
|
|
(1) |
|
Purchase obligations primarily relate to inventory and capital
expenditure commitments. |
(2) |
|
Pension obligations reflect only expected pension funding as
there are currently no required funding obligations under
government regulation. Funding amounts are calculated on an
annual basis and no required or planned funding beyond one year
has been determined. |
(3) |
|
The Company adopted FASB ASC Topic 740, Income Taxes, on
December 31, 2006. The total amount of unrecognized tax
benefits on the Consolidated Balance Sheet at January 1,
2011 is $9.7 million. At this time, the Company is unable
to make a reasonably reliable estimate of the timing of payments
in individual years beyond 12 months due to uncertainties
in the timing of tax audit outcomes. As a result, this amount is
not included in the table above. |
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.
36
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The response to this Item is set forth under the caption
Quantitative and Qualitative Disclosures About Market
Risk in Item 7, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and is incorporated herein by reference.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
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.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Companys management, including the
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based on and as of the time
of such evaluation, the Companys management, including the
Chief Executive Officer and Chief Financial Officer, concluded
that the Companys disclosure controls and procedures were
effective as of the end of the period covered by this report.
Managements
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 Companys 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 Companys 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 Companys
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
37
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The Companys 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 Companys 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 Companys principal executive officer,
principal financial officer and principal accounting officer,
and has adopted a Code of Conduct & Compliance that
applies to the Companys directors and employees. The
Accounting and Finance Code of Ethics and the Code of
Conduct & Compliance are available on the
Companys 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
Companys executive officers and directors will be
disclosed on the Companys website. Any amendment to the
Accounting and Finance Code of Ethics and the Code of
Conduct & Compliance will be disclosed on the
Companys 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.
|
|
Item 11.
|
Executive
Compensation
|
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.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information contained under the caption Securities
Ownership of Officers and Directors and Certain Beneficial
Owners 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.
38
Equity
Compensation Plan Information
The following table provides information about the
Companys equity compensation plans as of January 1,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
|
|
Weighted Average
|
|
|
Future Issuance under
|
|
|
|
Number of Securities to be
|
|
|
Exercise Price of
|
|
|
Equity Compensation
|
|
|
|
Issued Upon Exercise of
|
|
|
Outstanding
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants
|
|
|
Securities Reflected in
|
|
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
Column (a))
|
|
Plan
Category1
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
4,248,9102,3
|
|
|
$
|
21.47
|
|
|
|
4,945,3794
|
|
Equity compensation plans not approved by security holders
|
|
|
-
|
|
|
|
N/A
|
|
|
|
-
|
|
Total
|
|
|
4,248,910
|
|
|
$
|
21.47
|
|
|
|
4,945,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Each plan for which aggregated information is provided contains
customary anti-dilution provisions that are applicable in the
event of a stock split, stock dividend or certain other changes
in the Companys capitalization.
|
2
|
Includes: (i) 3,822,087 stock options awarded to employees
under the 1993 Stock Incentive Plan, the 1995 Stock Incentive
Plan, the 1997 Stock Incentive Plan, the Amended and Restated
Stock Incentive Plan of 1999, the Amended and Restated Stock
Incentive Plan of 2001, the Amended and Restated Stock Incentive
Plan of 2003, the Amended and Restated Stock Incentive Plan of
2005 and the Stock Incentive Plan of 2010; and (ii) and
426,823 stock options awarded to non-employee directors under
the Stock Incentive Plan of 2010, the Amended and Restated Stock
Incentive Plan of 2005 and the Amended and Restated
Directors Stock Option Plan last approved by stockholders
in 2002. Column (a) does not include stock units credited
to outside directors fee accounts or retirement accounts
under the Outside Directors Deferred Compensation Plan.
Stock units do not have an exercise price. Each stock unit
credited to a directors fee account and retirement account
under the Outside Directors Deferred Compensation Plan
will be converted into one share of common stock upon
distribution. Column (a) also does not include shares of
restricted or unrestricted common stock previously issued under
the Companys equity compensation plans.
|
3
|
Of this amount, 1,114,325 options were not exercisable as of
January 1, 2011, due to vesting restrictions.
|
4
|
Comprised of: (i) 427,265 shares available for
issuance under the Outside Directors Deferred Compensation
Plan upon the retirement of the current directors or upon a
change in control; and (ii) 4,518,114 shares issuable
under the Stock Incentive Plan of 2010.
|
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 Companys common stock on the date of
payment of the next cash dividend on the Companys 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 directors fee account
and retirement account. Upon distribution, the participating
directors receive a number of shares of the Companys
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
Companys obligations when distribution is triggered and
are included in shares reported as issued and outstanding as of
the record date.
39
|
|
|
The Stock Incentive Plan of 2010 is an equity-based incentive
plans for officers, key employees, and directors. The Stock
Incentive Plan of 2010 authorizes awards of stock options,
restricted common stock, common stock, restricted stock units,
and/or stock
appreciation rights. The Stock Incentive Plan of 2010 provides
that each share of restricted or unrestricted common stock and
each restricted stock unit is counted as two shares against the
total number of shares authorized for issuance under the plan.
The number of securities listed as remaining available in column
(c) of the table assumes the grant of all stock options,
which count as only one share against the total number of shares
authorized for issuance under the plan. Actual shares available
under the plan will be less to the extent that the Company
awards restricted common stock, unrestricted common stock or
restricted stock units under the plan. The numbers provided in
this footnote and in column (c) will increase to the extent
that options relating to the number of shares listed in column
(a) of the table or other outstanding awards (e.g., shares
of restricted or unrestricted stock, restricted stock units or
stock appreciation rights) previously issued under the plan are
canceled, surrendered, modified, exchanged for substitutes or
expire or terminate prior to exercise or vesting because the
number of shares underlying any such awards will again become
available for issuance under the plan under which the award was
granted.
|
|
|
Of the total number of shares available under column (C), the
number of shares with respect to the following plans may be
issued other than upon the exercise of an option, warrant or
right outstanding as of January 1, 2011:
|
|
|
|
|
|
Outside Directors Deferred Compensation Plan: 427,265
|
|
|
Stock Incentive Plan of 2010: 2,259,057
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information contained under the caption Related Party
Matters under the subheadings Certain Relationships
and Related Transactions and Related Person
Transactions Policy contained in the Definitive Proxy
Statement of the Company with respect to the Annual Meeting of
Stockholders to be held on April 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.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
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.
40
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
Item 15(a)(1).
|
Financial
Statements
Attached as Appendix A
|
The following consolidated financial statements of Wolverine
World Wide, Inc. and its subsidiaries are filed as a part of
this report:
|
|
|
|
|
Consolidated Balance Sheets as of January 1, 2011 and
January 2, 2010.
|
|
|
Consolidated Statements of Stockholders Equity and
Comprehensive Income for the Fiscal Years Ended January 1,
2011, January 2, 2010 and January 3, 2009.
|
|
|
Consolidated Statements of Operations for the Fiscal Years Ended
January 1, 2011, January 2, 2010 and January 3,
2009.
|
|
|
Consolidated Statements of Cash Flows for the Fiscal Years Ended
January 1, 2011, January 2, 2010 and January 3,
2009.
|
|
|
Notes to the Consolidated Financial Statements as of
January 1, 2011.
|
|
|
Reports of Independent Registered Public Accounting Firm.
|
|
|
Item 15(a)(2).
|
Financial
Statement
Schedules
Attached
as Appendix B
|
The following consolidated financial statement schedule of
Wolverine World Wide, Inc. and its subsidiaries is filed as a
part of this report:
|
|
|
|
|
Schedule IIValuation and Qualifying Accounts.
|
All other schedules (I, III, IV, and V) for which
provision is made in the applicable accounting regulations of
the SEC are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
41
The following exhibits are filed as part of this report:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Document
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation. Previously filed as
Exhibit 3.1 to the Companys Annual Report on Form 10-K for
the period ended December 30, 2006. Here incorporated by
reference.
|
|
3
|
.2
|
|
Amended and Restated By-laws. Previously filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K filed on December
15, 2010. Here incorporated by reference.
|
|
4
|
.1
|
|
The Registrant has other long-term debt instruments outstanding
in addition to those described in Exhibit 4.2. The authorized
amount of none of these classes of debt exceeds 10% of the
Companys total consolidated assets. The Company agrees to
furnish copies of any agreement defining the rights of holders
of any such long-term indebtedness to the Securities and
Exchange Commission upon request.
|
|
4
|
.2
|
|
Credit Agreement, dated as of June 7, 2010, among Wolverine
World Wide, Inc., certain foreign subsidiaries of Wolverine
World Wide, Inc., JPMorgan Chase Bank, N.A., as Administrative
Agent, and the lenders party thereto. Previously filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on June 8, 2010. Here incorporated by reference.
|
|
10
|
.1
|
|
1993 Stock Incentive Plan, as amended and restated.* Previously
filed as Exhibit 10.1 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2009. Here
incorporated by reference.
|
|
10
|
.2
|
|
Amended and Restated 1995 Stock Incentive Plan.* Previously
filed as Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2009. Here
incorporated by reference.
|
|
10
|
.3
|
|
Amended and Restated 1997 Stock Incentive Plan.* Previously
filed as Exhibit 10.3 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2009. Here
incorporated by reference.
|
|
10
|
.4
|
|
Amended and Restated Stock Incentive Plan of 1999.* Previously
filed as Exhibit 10.4 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2009. Here
incorporated by reference.
|
|
10
|
.5
|
|
Amended and Restated Stock Incentive Plan of 2001.* Previously
filed as Exhibit 10.5 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2009. Here
incorporated by reference.
|
|
10
|
.6
|
|
Amended and Restated Stock Incentive Plan of 2003.* Previously
filed as Exhibit 10.6 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2009. Here
incorporated by reference.
|
|
10
|
.7
|
|
Amended and Restated Stock Incentive Plan of 2005.* Previously
filed as Exhibit 10.7 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2009. Here
incorporated by reference.
|
|
10
|
.8
|
|
Amended and Restated Directors Stock Option Plan.*
Previously filed as Exhibit 10.8 to the Companys Annual
Report on Form 10-K for the fiscal year ended January 3, 2009.
Here incorporated by reference.
|
|
10
|
.9
|
|
Amended and Restated Outside Directors Deferred
Compensation Plan.* Previously filed as Exhibit 10.9 to the
Companys Annual Report on Form 10-K for the fiscal year
ended December 29, 2007. Here incorporated by reference.
|
|
10
|
.10
|
|
Amended and Restated Executive Short-Term Incentive Plan (Annual
Bonus Plan).* Previously filed as Exhibit 10.10 to the
Companys Annual Report on Form 10-K for the fiscal year
ended January 3, 2009. Here incorporated by reference.
|
|
10
|
.11
|
|
Amended and Restated Executive Long-Term Incentive Plan (3-Year
Bonus Plan).* Previously filed as Exhibit 10.11 to the
Companys Annual Report on Form 10-K for the fiscal year
ended January 3, 2009. Here incorporated by reference.
|
42
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Document
|
|
|
10
|
.12
|
|
Amended and Restated Stock Option Loan Program.* Previously
filed as Exhibit 10.12 to the Companys 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 Companys 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 Companys 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
Companys 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 Companys 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. ODonovan.* Previously filed as
Exhibit 10.2 to the Companys 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 Companys 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 Companys 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 Companys 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. ODonovan.* Previously filed as
Exhibit 10.2 to the Companys 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 Companys 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 Companys 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 Companys 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
Companys 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 Companys 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
Companys Annual Report on Form 10-K for the fiscal year
ended January 3, 2009. Here incorporated by reference.
|
43
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Document
|
|
|
10
|
.29
|
|
Form of Performance Share Award Agreement (2010 2012
performance period).* Previously filed as Exhibit 10.29 to the
Companys 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 Companys 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 Companys Annual
Report on Form 10-K for the fiscal year ended January 3, 2009.
Here incorporated by reference.
|
|
10
|
.33
|
|
409A Supplemental Executive Retirement Plan.* Previously filed
as Exhibit 10.1 to the Companys Current Report on Form 8-K
filed on December 17, 2008. Here incorporated by reference. A
participant schedule of current executive officers who
participate in this plan is attached as Exhibit 10.33.
|
|
10
|
.34
|
|
Form of 409A Supplemental Retirement Plan Participation
Agreement with Blake W. Krueger.* Previously filed as Exhibit
10.32 to the Companys Annual Report on Form 10-K for the
fiscal year ended January 3, 2009. Here incorporated by
reference.
|
|
10
|
.35
|
|
Outside Directors Deferred Compensation Plan.* Previously
filed as Exhibit 10.2 to the Companys Current Report on
Form 8-K filed on December 17, 2008. Here incorporated by
reference.
|
|
10
|
.36
|
|
Stock Incentive Plan of 2010.* Previously filed as Exhibit 10.1
to the Companys Registration Statement on Form S-8 filed
on March 4, 2010. Here incorporated by reference.
|
|
21
|
|
|
Subsidiaries of Registrant.
|
|
23
|
|
|
Consent of Ernst & Young LLP.
|
|
24
|
|
|
Powers of Attorney.
|
|
31
|
.1
|
|
Certification of Chairman, Chief Executive Officer and President
under Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Senior Vice President, Chief Financial Officer
and Treasurer under Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32
|
|
|
Certification pursuant to 18 U.S.C. § 1350.
|
|
101
|
|
|
The following materials from the Companys Annual Report on
Form 10-K for the fiscal year ended January 1, 2011, formatted
in XBRL (eXtensible Business Reporting Language): (i)
Consolidated Balance Sheets as of as of January 1, 2011 and
January 2, 2010, (ii) Consolidated Statements of Operations for
the fiscal years ended January 1, 2011, January 2, 2010 and
January 3, 2009, (iii) Consolidated Statements of Cash
Flows for the fiscal years ended January 1, 2011, January 2,
2010 and January 3, 2009, and (iv) Notes to the Consolidated
Financial Statements, tagged as blocks of text.**
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
|
** |
|
Pursuant to Rule 406T of
Regulation S-T,
the Interactive Data Files on Exhibit 101 hereto are deemed
not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of
1933, as amended, are deemed not filed for purposes of Section
18 of the Securities and Exchange Act of 1934, as amended, and
otherwise are not subject to liability under those sections. |
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.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
|
|
WOLVERINE WORLD WIDE, INC.
|
|
|
|
Dated: March 2, 2011
|
|
By: /s/ Blake
W. Krueger
Blake
W. Krueger
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
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|
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|
Signature
|
|
Title
|
|
Date
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|
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|
|
|
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/s/ Blake
W. Krueger
Blake
W. Krueger
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|
Chairman, Chief Executive Officer and President (Principal
Executive Officer)
|
|
March 2, 2011
|
|
|
|
|
|
/s/ Donald
T. Grimes
Donald
T. Grimes
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|
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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|
March 2, 2011
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* /s/ Jeffrey
M. Boromisa
Jeffrey
M. Boromisa
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Director
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March 2, 2011
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* /s/ William
K. Gerber
William
K. Gerber
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Director
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March 2, 2011
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|
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* /s/ Alberto
L. Grimoldi
Alberto
L. Grimoldi
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Director
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|
March 2, 2011
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* /s/ Joseph
R. Gromek
Joseph
R. Gromek
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Director
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March 2, 2011
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* /s/ David
T. Kollat
David
T. Kollat
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Director
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March 2, 2011
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|
|
|
|
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/s/ Blake
W. Krueger
Blake
W. Krueger
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Director
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|
March 2, 2011
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* /s/ Brenda
J. Lauderback
Brenda
J. Lauderback
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Director
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March 2, 2011
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* /s/ David
P. Mehney
David
P. Mehney
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Director
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March 2, 2011
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* /s/ Timothy
J. ODonovan
Timothy
J. ODonovan
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Director
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March 2, 2011
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* /s/ Shirley
D. Peterson
Shirley
D. Peterson
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Director
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March 2, 2011
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* /s/ Michael
A. Volkema
Michael
A. Volkema
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Director
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March 2, 2011
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*By
/s/ Blake
W. Krueger
Blake
W. Krueger
Attorney-in-Fact
|
|
Chairman, Chief Executive Officer and President
|
|
March 2, 2011
|
45
APPENDIX A
Financial
Statements
46
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
As of Fiscal Year End
|
|
|
|
2010
|
|
|
2009
|
|
(Thousands of Dollars, Except Share and Per Share Data)
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
150,400
|
|
|
$
|
160,439
|
|
Accounts receivable, less allowances (2010
$(11,413); 2009 $(13,946))
|
|
|
196,457
|
|
|
|
163,755
|
|
Inventories
|
|
|
|
|
|
|
|
|
Finished products
|
|
|
188,647
|
|
|
|
140,124
|
|
Raw materials and
work-in-process
|
|
|
20,008
|
|
|
|
17,941
|
|
|
|
|
|
208,655
|
|
|
|
158,065
|
|
Deferred income taxes
|
|
|
13,225
|
|
|
|
12,475
|
|
Prepaid expenses and other current assets
|
|
|
11,397
|
|
|
|
12,947
|
|
|
Total current assets
|
|
|
580,134
|
|
|
|
507,681
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
826
|
|
|
|
881
|
|
Buildings and improvements
|
|
|
71,724
|
|
|
|
80,511
|
|
Machinery and equipment
|
|
|
129,707
|
|
|
|
147,197
|
|
Software
|
|
|
79,307
|
|
|
|
74,559
|
|
|
|
|
|
281,564
|
|
|
|
303,148
|
|
Accumulated depreciation
|
|
|
(207,167
|
)
|
|
|
(229,196
|
)
|
|
|
|
|
74,397
|
|
|
|
73,952
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
39,014
|
|
|
|
39,972
|
|
Other
non-amortizable
intangibles
|
|
|
16,464
|
|
|
|
16,226
|
|
Cash surrender value of life insurance
|
|
|
36,042
|
|
|
|
35,405
|
|
Deferred income taxes
|
|
|
37,602
|
|
|
|
35,094
|
|
Other
|
|
|
2,922
|
|
|
|
3,746
|
|
|
|
|
|
132,044
|
|
|
|
130,443
|
|
|
Total assets
|
|
$
|
786,575
|
|
|
$
|
712,076
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
64,080
|
|
|
$
|
42,262
|
|
Accrued salaries and wages
|
|
|
26,848
|
|
|
|
20,751
|
|
Income taxes
|
|
|
2,746
|
|
|
|
14,634
|
|
Taxes, other than income taxes
|
|
|
6,586
|
|
|
|
4,521
|
|
Restructuring reserve
|
|
|
1,314
|
|
|
|
5,926
|
|
Other accrued liabilities
|
|
|
37,046
|
|
|
|
37,922
|
|
Accrued pension liabilities
|
|
|
2,018
|
|
|
|
2,044
|
|
Current maturities of long-term debt
|
|
|
517
|
|
|
|
538
|
|
|
Total current liabilities
|
|
|
141,155
|
|
|
|
128,598
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
517
|
|
|
|
1,077
|
|
Deferred compensation
|
|
|
4,410
|
|
|
|
5,870
|
|
Accrued pension liabilities
|
|
|
83,685
|
|
|
|
84,134
|
|
Other liabilities
|
|
|
12,911
|
|
|
|
10,364
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
63,976
|
|
|
|
62,764
|
|
Additional paid-in capital
|
|
|
108,286
|
|
|
|
81,021
|
|
Retained earnings
|
|
|
789,684
|
|
|
|
706,439
|
|
Accumulated other comprehensive income (loss)
|
|
|
(41,123
|
)
|
|
|
(42,806
|
)
|
Cost of shares in treasury: 2010
14,976,835 shares; 2009 13,170,471 shares
|
|
|
(376,926
|
)
|
|
|
(325,385
|
)
|
|
Total stockholders equity
|
|
|
543,897
|
|
|
|
482,033
|
|
|
Total liabilities and stockholders equity
|
|
$
|
786,575
|
|
|
$
|
712,076
|
|
|
|
See accompanying notes to consolidated financial statements.
A-1
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
(Thousands of Dollars, Except Share and Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
|
$
|
62,764
|
|
|
|
$
|
61,656
|
|
|
|
$
|
61,085
|
|
Common stock issued under stock incentive plans
(2010 1,212,463 shares; 2009
1,108,112 shares; 2008 570,691 shares)
|
|
|
|
1,212
|
|
|
|
|
1,108
|
|
|
|
|
571
|
|
|
Balance at end of the year
|
|
|
|
63,976
|
|
|
|
|
62,764
|
|
|
|
|
61,656
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
|
|
81,021
|
|
|
|
|
64,696
|
|
|
|
|
47,786
|
|
Stock-based compensation expense
|
|
|
|
11,543
|
|
|
|
|
8,649
|
|
|
|
|
8,164
|
|
Amounts associated with common stock issued
under stock incentive plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds over par value
|
|
|
|
6,289
|
|
|
|
|
2,050
|
|
|
|
|
5,859
|
|
Income tax benefits
|
|
|
|
4,094
|
|
|
|
|
1,427
|
|
|
|
|
2,842
|
|
Issuance of performance-based shares (2010
215,027 shares;
2009 286,006 shares)
|
|
|
|
5,197
|
|
|
|
|
4,507
|
|
|
|
|
|
|
Issuance of treasury shares (2010
25,829 shares;
2009 32,455 shares; 2008
22,842 shares)
|
|
|
|
142
|
|
|
|
|
(111
|
)
|
|
|
|
54
|
|
Net change in employee notes receivable
|
|
|
|
|
|
|
|
|
(197
|
)
|
|
|
|
(9
|
)
|
|
Balance at end of the year
|
|
|
|
108,286
|
|
|
|
|
81,021
|
|
|
|
|
64,696
|
|
|
RETAINED EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
|
|
706,439
|
|
|
|
|
666,027
|
|
|
|
|
591,706
|
|
Net earnings
|
|
|
|
104,470
|
|
|
|
|
61,912
|
|
|
|
|
95,821
|
|
Cash dividends declared (2010 $0.44 per share;
2009 $0.44 per share; 2008 $0.44 per
share)
|
|
|
|
(21,225
|
)
|
|
|
|
(21,500
|
)
|
|
|
|
(21,500
|
)
|
|
Balance at end of the year
|
|
|
|
789,684
|
|
|
|
|
706,439
|
|
|
|
|
666,027
|
|
|
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
|
|
(42,806
|
)
|
|
|
|
(42,834
|
)
|
|
|
|
22,268
|
|
Foreign currency translation adjustments
|
|
|
|
(2,929
|
)
|
|
|
|
15,349
|
|
|
|
|
(36,305
|
)
|
Change in fair value of foreign exchange contracts,
net of taxes (2010 $(750); 2009 $3,482;
2008 $(3,447))
|
|
|
|
1,731
|
|
|
|
|
(7,469
|
)
|
|
|
|
5,978
|
|
Pension adjustments, net of taxes (2010 $(1,551);
2009 $4,228; 2008 $18,963)
|
|
|
|
2,881
|
|
|
|
|
(7,852
|
)
|
|
|
|
(34,775
|
)
|
|
Balance at end of the year
|
|
|
|
(41,123
|
)
|
|
|
|
(42,806
|
)
|
|
|
|
(42,834
|
)
|
|
COST OF SHARES IN TREASURY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
|
|
|
(325,385
|
)
|
|
|
|
(319,623
|
)
|
|
|
|
(244,066
|
)
|
Common stock acquired for treasury (2010
1,832,193
shares; 2009 454,205 shares; 2008
2,921,264 shares)
|
|
|
|
(52,190
|
)
|
|
|
|
(6,566
|
)
|
|
|
|
(76,129
|
)
|
Issuance of treasury shares (2010
25,829 shares;
2009 32,455 shares; 2008
22,842 shares)
|
|
|
|
649
|
|
|
|
|
804
|
|
|
|
|
572
|
|
|
Balance at end of the year
|
|
|
|
(376,926
|
)
|
|
|
|
(325,385
|
)
|
|
|
|
(319,623
|
)
|
|
Total stockholders equity at end of the year
|
|
|
$
|
543,897
|
|
|
|
$
|
482,033
|
|
|
|
$
|
429,922
|
|
|
|
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
104,470
|
|
|
|
$
|
61,912
|
|
|
|
$
|
95,821
|
|
Foreign currency translation adjustments
|
|
|
|
(2,929
|
)
|
|
|
|
15,349
|
|
|
|
|
(36,305
|
)
|
Change in fair value of foreign exchange contracts, net
of taxes
|
|
|
|
1,731
|
|
|
|
|
(7,469
|
)
|
|
|
|
5,978
|
)
|
Pension adjustments, net of taxes
|
|
|
|
2,881
|
|
|
|
|
(7,852
|
)
|
|
|
|
(34,775
|
)
|
|
Total comprehensive income
|
|
|
$
|
106,153
|
|
|
|
$
|
61,940
|
|
|
|
$
|
30,719
|
|
|
|
See accompanying notes to consolidated financial statements.
A-2
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
(Thousands of Dollars, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
1,248,517
|
|
|
|
$
|
1,101,056
|
|
|
|
$
|
1,220,568
|
|
Cost of goods sold
|
|
|
|
754,537
|
|
|
|
|
663,461
|
|
|
|
|
734,547
|
|
Restructuring and other transition costs
|
|
|
|
1,406
|
|
|
|
|
5,873
|
|
|
|
|
-
|
|
|
Gross profit
|
|
|
|
492,574
|
|
|
|
|
431,722
|
|
|
|
|
486,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
|
347,499
|
|
|
|
|
316,378
|
|
|
|
|
345,183
|
|
Restructuring and other transition costs
|
|
|
|
2,828
|
|
|
|
|
29,723
|
|
|
|
|
-
|
|
|
Operating profit
|
|
|
|
142,247
|
|
|
|
|
85,621
|
|
|
|
|
140,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
571
|
|
|
|
|
494
|
|
|
|
|
2,850
|
|
Interest income
|
|
|
|
(184
|
)
|
|
|
|
(383
|
)
|
|
|
|
(1,757
|
)
|
Other income - net
|
|
|
|
(1,366
|
)
|
|
|
|
(182
|
)
|
|
|
|
(839
|
)
|
|
|
|
|
|
(979
|
)
|
|
|
|
(71
|
)
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
|
143,226
|
|
|
|
|
85,692
|
|
|
|
|
140,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
38,756
|
|
|
|
|
23,780
|
|
|
|
|
44,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
104,470
|
|
|
|
$
|
61,912
|
|
|
|
$
|
95,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share (see Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
2.15
|
|
|
|
$
|
1.26
|
|
|
|
$
|
1.94
|
|
Diluted
|
|
|
$
|
2.11
|
|
|
|
$
|
1.24
|
|
|
|
$
|
1.90
|
|
|
|
See accompanying notes to consolidated financial statements.
A-3
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
104,470
|
|
|
|
$
|
61,912
|
|
|
|
$
|
95,821
|
|
Adjustments necessary to reconcile net earnings
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
14,509
|
|
|
|
|
15,932
|
|
|
|
|
18,460
|
|
Amortization
|
|
|
|
1,692
|
|
|
|
|
1,689
|
|
|
|
|
2,236
|
|
Deferred income taxes
|
|
|
|
(2,747
|
)
|
|
|
|
(7,845
|
)
|
|
|
|
(43
|
)
|
Stock-based compensation expense
|
|
|
|
11,543
|
|
|
|
|
8,649
|
|
|
|
|
8,164
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
(1,362
|
)
|
|
|
|
(462
|
)
|
|
|
|
(1,610
|
)
|
Pension expense
|
|
|
|
16,286
|
|
|
|
|
15,891
|
|
|
|
|
6,325
|
|
Restructuring and other transition costs
|
|
|
|
4,234
|
|
|
|
|
35,596
|
|
|
|
|
-
|
|
Cash payments related to restructuring and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transition costs
|
|
|
|
(7,516
|
)
|
|
|
|
(20,653
|
)
|
|
|
|
-
|
|
Other
|
|
|
|
4,060
|
|
|
|
|
(7,921
|
)
|
|
|
|
13,966
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
(32,466
|
)
|
|
|
|
9,817
|
|
|
|
|
3,419
|
|
Inventories
|
|
|
|
(51,173
|
)
|
|
|
|
44,500
|
|
|
|
|
(39,201
|
)
|
Other operating assets
|
|
|
|
689
|
|
|
|
|
3,103
|
|
|
|
|
(386
|
)
|
Accounts payable
|
|
|
|
21,672
|
|
|
|
|
(7,326
|
)
|
|
|
|
(5,064
|
)
|
Income taxes
|
|
|
|
(11,888
|
)
|
|
|
|
12,817
|
|
|
|
|
(2,094
|
)
|
Other operating liabilities
|
|
|
|
(4,137
|
)
|
|
|
|
2,910
|
|
|
|
|
(6,523
|
)
|
|
Net cash provided by operating activities
|
|
|
|
67,866
|
|
|
|
|
168,609
|
|
|
|
|
93,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions
|
|
|
|
-
|
|
|
|
|
(7,954
|
)
|
|
|
|
-
|
|
Additions to property, plant and equipment
|
|
|
|
(16,370
|
)
|
|
|
|
(11,670
|
)
|
|
|
|
(24,126
|
)
|
Proceeds from sales of property, plant and equipment
|
|
|
|
1,756
|
|
|
|
|
-
|
|
|
|
|
849
|
|
Other
|
|
|
|
(2,424
|
)
|
|
|
|
(2,679
|
)
|
|
|
|
(4,982
|
)
|
|
Net cash used in investing activities
|
|
|
|
(17,038
|
)
|
|
|
|
(22,303
|
)
|
|
|
|
(28,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under revolver
|
|
|
|
-
|
|
|
|
|
(59,500
|
)
|
|
|
|
59,500
|
|
Payments of long-term debt
|
|
|
|
(538
|
)
|
|
|
|
-
|
|
|
|
|
(10,714
|
)
|
Payments of capital lease obligations
|
|
|
|
-
|
|
|
|
|
(5
|
)
|
|
|
|
(12
|
)
|
Cash dividends paid
|
|
|
|
(21,414
|
)
|
|
|
|
(21,502
|
)
|
|
|
|
(20,758
|
)
|
Purchase of common stock for treasury
|
|
|
|
(52,190
|
)
|
|
|
|
(6,566
|
)
|
|
|
|
(76,129
|
)
|
Proceeds from shares issued under stock incentive plans
|
|
|
|
13,631
|
|
|
|
|
7,867
|
|
|
|
|
7,047
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
1,362
|
|
|
|
|
462
|
|
|
|
|
1,610
|
|
|
Net cash used in financing activities
|
|
|
|
(59,149
|
)
|
|
|
|
(79,244
|
)
|
|
|
|
(39,456
|
)
|
Effect of foreign exchange rate changes
|
|
|
|
(1,718
|
)
|
|
|
|
3,875
|
|
|
|
|
(12,340
|
)
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
(10,039
|
)
|
|
|
|
70,937
|
|
|
|
|
13,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the year
|
|
|
|
160,439
|
|
|
|
|
89,502
|
|
|
|
|
76,087
|
|
|
Cash and cash equivalents at end of the year
|
|
|
$
|
150,400
|
|
|
|
$
|
160,439
|
|
|
|
$
|
89,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
$
|
192
|
|
|
|
$
|
486
|
|
|
|
$
|
2,365
|
|
Net income taxes paid
|
|
|
$
|
30,604
|
|
|
|
$
|
7,297
|
|
|
|
$
|
35,995
|
|
See accompanying notes to consolidated financial statements.
A-4
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
All amounts are in thousands of dollars except share and per
share data and elsewhere as noted.
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of
Operations
Wolverine World Wide, Inc. is a leading designer, manufacturer
and marketer of a broad range of quality casual shoes,
performance outdoor footwear and apparel, industrial work shoes,
boots and apparel, and uniform shoes and boots. The
Companys 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 Companys 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 Companys 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 Companys
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 Companys 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.
A-5
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 Companys
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 Companys 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
A-6
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2014
|
|
|
|
2015
|
|
Amortization expense
|
|
|
$
|
1,245
|
|
|
|
$
|
361
|
|
|
|
$
|
233
|
|
|
|
$
|
135
|
|
|
|
$
|
63
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
Trademarks
|
|
|
|
Total
|
|
Balance at January 3, 2009
|
|
|
$
|
32,310
|
|
|
|
$
|
9,257
|
|
|
|
$
|
41,567
|
|
Intangibles acquired
|
|
|
|
5,464
|
|
|
|
|
6,969
|
|
|
|
|
12,433
|
|
Foreign currency translation effects
|
|
|
|
2,198
|
|
|
|
|
-
|
|
|
|
|
2,198
|
|
|
Balance at January 2, 2010
|
|
|
$
|
39,972
|
|
|
|
$
|
16,226
|
|
|
|
$
|
56,198
|
|
Intangibles acquired
|
|
|
|
-
|
|
|
|
|
360
|
|
|
|
|
360
|
|
Foreign currency translation effects
|
|
|
|
(958
|
)
|
|
|
|
(122
|
)
|
|
|
|
(1,080
|
)
|
|
Balance at January 1, 2011
|
|
|
$
|
39,014
|
|
|
|
$
|
16,464
|
|
|
|
$
|
55,478
|
|
|
|
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
Companys 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.
A-7
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
Expected market price volatility
(1)
|
|
|
37.9%
|
|
|
34.8%
|
|
|
28.9%
|
Risk-free interest rate
(2)
|
|
|
1.9%
|
|
|
1.6%
|
|
|
2.5%
|
Dividend yield
(3)
|
|
|
1.9%
|
|
|
1.8%
|
|
|
1.6%
|
Expected term
(4)
|
|
|
4 years
|
|
|
4 years
|
|
|
4 years
|
|
|
|
(1) |
|
Based on historical volatility of the Companys common
stock. The expected volatility is based on the daily percentage
change in the price of the stock over the four years prior to
the grant. |
(2) |
|
Represents the U.S. Treasury yield curve in effect for the
expected term of the option at the time of grant. |
(3) |
|
Represents the Companys cash dividend yield for the
expected term. |
(4) |
|
Represents the period of time that options granted are expected
to be outstanding. As part of the determination of the expected
term, the Company concluded that all employee groups exhibit
similar exercise and
post-vesting
termination behavior. |
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 Companys 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.
A-8
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$
|
104,470
|
|
|
|
$
|
61,912
|
|
|
|
$
|
95,821
|
|
Adjustment for earnings allocated to nonvested restricted common
stock
|
|
|
|
(1,608
|
)
|
|
|
|
(1,036
|
)
|
|
|
|
(996
|
)
|
|
Net earnings used to calculate basic earnings per share
|
|
|
|
102,862
|
|
|
|
|
60,876
|
|
|
|
|
94,825
|
|
Adjustment for earnings reallocated to nonvested restricted
common stock
|
|
|
|
38
|
|
|
|
|
8
|
|
|
|
|
18
|
|
|
Net earnings used to calculate diluted earnings per share
|
|
|
$
|
102,900
|
|
|
|
$
|
60,884
|
|
|
|
$
|
94,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
49,051,739
|
|
|
|
|
49,192,662
|
|
|
|
|
49,381,789
|
|
Adjustment for nonvested restricted common stock
|
|
|
|
(1,206,460
|
)
|
|
|
|
(921,715
|
)
|
|
|
|
(513,063
|
)
|
|
Shares used to calculate basic earnings per share
|
|
|
|
47,845,279
|
|
|
|
|
48,270,947
|
|
|
|
|
48,868,726
|
|
Effect of dilutive stock options
|
|
|
|
1,011,731
|
|
|
|
|
708,485
|
|
|
|
|
1,151,565
|
|
|
Shares used to calculate diluted earnings per share
|
|
|
|
48,857,010
|
|
|
|
|
48,979,432
|
|
|
|
|
50,020,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
2.15
|
|
|
|
$
|
1.26
|
|
|
|
$
|
1.94
|
|
Diluted
|
|
|
$
|
2.11
|
|
|
|
$
|
1.24
|
|
|
|
$
|
1.90
|
|
|
|
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 Companys 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:
|
|
Fair value is measured using quoted prices (unadjusted) in
active markets for identical assets and liabilities.
|
Level 2:
|
|
Fair value is measured using either direct or indirect inputs,
other than quoted prices included within Level 1, which are
observable for similar assets or liabilities.
|
Level 3:
|
|
Fair value is measured using valuation techniques in which one
or more significant inputs are unobservable.
|
The Companys financial instruments consist of cash and
cash equivalents, accounts and notes receivable, accounts
payable, foreign currency forward exchange contracts, borrowings
under the Companys revolving credit agreement and
long-term debt. The carrying amount of the Companys
financial instruments is historical cost, which
A-9
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 Companys 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 Companys
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
Foreign currency translation adjustments
|
|
|
$
|
11,548
|
|
|
|
$
|
14,477
|
|
Change in fair value of foreign exchange contracts,
net of taxes
(2010 $828; 2009 $1,578)
|
|
|
|
(1,815
|
)
|
|
|
|
(3,546
|
)
|
Pension adjustments, net of taxes
(2010 $26,908; 2009 $28,459)
|
|
|
|
(50,856
|
)
|
|
|
|
(53,737
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
$
|
(41,123
|
)
|
|
|
$
|
(42,806
|
)
|
|
|
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.
A-10
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
Notes payable
|
|
|
$
|
1,034
|
|
|
|
$
|
1,615
|
|
Current maturities
|
|
|
|
(517
|
)
|
|
|
|
(538
|
)
|
|
Total long-term debt
|
|
|
$
|
517
|
|
|
|
$
|
1,077
|
|
|
|
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 Companys 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 Companys 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
Companys 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
Companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2014
|
|
|
|
2015
|
|
|
|
Thereafter
|
|
Minimum rental payments
|
|
|
$
|
16,926
|
|
|
|
$
|
14,730
|
|
|
|
$
|
13,408
|
|
|
|
$
|
11,985
|
|
|
|
$
|
11,402
|
|
|
|
$
|
49,683
|
|
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
A-11
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Average
|
|
|
|
Contractual
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Under
|
|
|
|
Exercise
|
|
|
|
Term
|
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
Price
|
|
|
|
(Years)
|
|
|
|
Value
|
|
|
|
|
|
Outstanding at December 29, 2007
|
|
|
|
4,588,245
|
|
|
|
$
|
18.46
|
|
|
|
|
5.4
|
|
|
|
$
|
31,096
|
|
|
|
|
|
|
Granted
|
|
|
|
845,843
|
|
|
|
|
25.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(713,048
|
)
|
|
|
|
15.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
(148,656
|
)
|
|
|
|
25.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2009
|
|
|
|
4,572,384
|
|
|
|
$
|
19.95
|
|
|
|
|
5.6
|
|
|
|
$
|
16,155
|
|
|
|
|
|
|
Granted
|
|
|
|
863,017
|
|
|
|
|
17.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(582,318
|
)
|
|
|
|
13.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
(233,737
|
)
|
|
|
|
20.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 2, 2010
|
|
|
|
4,619,346
|
|
|
|
$
|
20.17
|
|
|
|
|
5.8
|
|
|
|
$
|
34,212
|
|
|
|
|
|
|
Granted
|
|
|
|
537,807
|
|
|
|
|
25.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
(848,106
|
)
|
|
|
|
16.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
(60,137
|
)
|
|
|
|
23.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
|
4,248,910
|
|
|
|
$
|
21.47
|
|
|
|
|
5.7
|
|
|
|
$
|
44,254
|
|
|
|
|
|
|
Estimated forfeitures
|
|
|
|
(4,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2011
|
|
|
|
4,244,083
|
|
|
|
$
|
21.46
|
|
|
|
|
5.7
|
|
|
|
$
|
44,213
|
|
|
|
|
|
|
Nonvested at January 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and expected to vest
|
|
|
|
(1,109,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 1, 2011
|
|
|
|
3,134,585
|
|
|
|
$
|
21.24
|
|
|
|
|
4.8
|
|
|
|
$
|
33,346
|
|
|
|
|
|
|
|
|
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 Companys
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
A-12
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Restricted
|
|
|
|
Grant Date
|
|
|
|
Performance
|
|
|
|
Grant Date
|
|
|
|
|
Awards
|
|
|
|
Fair Value
|
|
|
|
Awards
|
|
|
|
Fair Value
|
|
Nonvested at December 29, 2007
|
|
|
|
573,381
|
|
|
|
$
|
21.52
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Granted
|
|
|
|
179,755
|
|
|
|
|
24.85
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Vested
|
|
|
|
(234,581
|
)
|
|
|
|
18.36
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Forfeited
|
|
|
|
(46,063
|
)
|
|
|
|
24.08
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
Nonvested at January 3, 2009
|
|
|
|
472,492
|
|
|
|
$
|
24.11
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Granted
|
|
|
|
350,653
|
|
|
|
|
17.34
|
|
|
|
|
286,006
|
|
|
|
|
17.21
|
|
Vested
|
|
|
|
(145,797
|
)
|
|
|
|
20.31
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Forfeited
|
|
|
|
(36,878
|
)
|
|
|
|
22.45
|
|
|
|
|
(22,101
|
)
|
|
|
|
17.11
|
|
|
Nonvested at January 2, 2010
|
|
|
|
640,470
|
|
|
|
$
|
21.34
|
|
|
|
|
263,905
|
|
|
|
$
|
17.22
|
|
Granted
|
|
|
|
262,342
|
|
|
|
|
25.51
|
|
|
|
|
215,027
|
|
|
|
|
24.30
|
|
Vested
|
|
|
|
(117,438
|
)
|
|
|
|
22.71
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Forfeited
|
|
|
|
(21,828
|
)
|
|
|
|
21.93
|
|
|
|
|
(4,407
|
)
|
|
|
|
17.11
|
|
|
Nonvested at January 1, 2011
|
|
|
|
763,546
|
|
|
|
$
|
22.55
|
|
|
|
|
474,525
|
|
|
|
$
|
20.43
|
|
|
|
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 Companys 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
Companys 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
Companys principal defined benefit pension plan provides
benefits based on the employees 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 employees 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.
A-13
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
Companys assets and related obligations for its pension
plans (which include the Companys defined benefit pension
plans and the SERP) for the fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
Change in projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at beginning of the year
|
|
|
$
|
211,670
|
|
|
|
$
|
174,970
|
|
Service cost pertaining to benefits earned during the year
|
|
|
|
5,729
|
|
|
|
|
4,543
|
|
Interest cost on projected benefit obligations
|
|
|
|
12,719
|
|
|
|
|
12,232
|
|
Actuarial losses
|
|
|
|
10,955
|
|
|
|
|
30,521
|
|
Special termination benefits
|
|
|
|
-
|
|
|
|
|
139
|
|
Benefits paid to plan participants
|
|
|
|
(10,959
|
)
|
|
|
|
(10,735
|
)
|
|
Projected benefit obligations at end of the year
|
|
|
$
|
230,114
|
|
|
|
$
|
211,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of pension assets:
|
|
|
|
|
|
|
|
|
|
|
Fair value of pension assets at beginning of the year
|
|
|
$
|
125,492
|
|
|
|
$
|
112,049
|
|
Actual return on plan assets
|
|
|
|
17,549
|
|
|
|
|
19,464
|
|
Company contributions
|
|
|
|
12,329
|
|
|
|
|
4,714
|
|
Benefits paid to plan participants
|
|
|
|
(10,959
|
)
|
|
|
|
(10,735
|
)
|
|
Fair value of pension assets at end of the year
|
|
|
$
|
144,411
|
|
|
|
$
|
125,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
$
|
(85,703
|
)
|
|
|
$
|
(86,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
$
|
(2,018
|
)
|
|
|
$
|
(2,044
|
)
|
Non current liabilities
|
|
|
|
(83,685
|
)
|
|
|
|
(84,134
|
)
|
|
Net amount recognized
|
|
|
$
|
(85,703
|
)
|
|
|
$
|
(86,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial loss (net of tax: 2010 -
$(50,452); 2009 -$(53,165))
|
|
|
$
|
(76,258
|
)
|
|
|
$
|
(80,432
|
)
|
Unrecognized prior service cost (net of tax: 2010 - $(404);
2009 - $(572))
|
|
|
|
(622
|
)
|
|
|
|
(880
|
)
|
|
Net amount recognized
|
|
|
$
|
(76,880
|
)
|
|
|
$
|
(81,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of pension plans and SERP (supplemental):
|
|
|
|
|
|
|
|
|
|
|
Funded status of qualified defined benefit plans and SERP
|
|
|
$
|
(85,703
|
)
|
|
|
$
|
(86,178
|
)
|
Nonqualified trust assets (cash surrender value of life
insurance) recorded in other assets and intended to satisfy the
projected benefit obligation of unfunded SERP
|
|
|
|
34,549
|
|
|
|
|
33,731
|
|
|
Net funded status of pension plans and SERP (supplemental)
|
|
|
$
|
(51,154
|
)
|
|
|
$
|
(52,447
|
)
|
|
|
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.
A-14
The following is a summary of net pension and SERP expense
recognized by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
Service cost pertaining to benefits earned during the year
|
|
|
$
|
(5,729
|
)
|
|
|
$
|
(4,543
|
)
|
|
|
$
|
(4,859
|
)
|
Interest cost on projected benefit obligations
|
|
|
|
(12,719
|
)
|
|
|
|
(12,233
|
)
|
|
|
|
(11,413
|
)
|
Expected return on pension assets
|
|
|
|
12,467
|
|
|
|
|
10,911
|
|
|
|
|
13,914
|
|
Net amortization loss
|
|
|
|
(10,305
|
)
|
|
|
|
(9,275
|
)
|
|
|
|
(3,967
|
)
|
Curtailment (gain)
|
|
|
|
-
|
|
|
|
|
(612
|
)
|
|
|
|
-
|
|
Special termination benefit charge
|
|
|
|
-
|
|
|
|
|
(139
|
)
|
|
|
|
-
|
|
|
Net pension expense
|
|
|
$
|
(16,286
|
)
|
|
|
$
|
(15,891
|
)
|
|
|
$
|
(6,325
|
)
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
Weighted-average assumptions used to determine benefit
obligations at fiscal year end:
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
|
5.94
|
%
|
|
|
|
6.17%
|
|
Rate of compensation increase
|
|
|
|
3.25
|
%
|
|
|
|
3.25%
|
|
Weighted average assumptions used to determine net periodic
benefit cost for the years ended:
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
|
6.17
|
%
|
|
|
|
7.25%
|
|
Expected long-term rate of return on plan assets
|
|
|
|
8.50
|
%
|
|
|
|
8.50%
|
|
Rate of compensation increase
|
|
|
|
3.25
|
%
|
|
|
|
3.50%
|
|
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 plans
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 Companys, utilizing historic returns for broad
market and fixed income indices.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
$
|
|
|
|
%
|
|
|
|
$
|
|
|
|
%
|
|
Weighted average asset allocations at fiscal year end by asset
category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
102,144
|
|
|
|
|
70.7
|
%
|
|
|
|
85,026
|
|
|
|
|
67.8%
|
|
Fixed income investments
|
|
|
|
37,038
|
|
|
|
|
25.7
|
%
|
|
|
|
36,302
|
|
|
|
|
29.0%
|
|
Cash and money market investments
|
|
|
|
5,229
|
|
|
|
|
3.6
|
%
|
|
|
|
4,164
|
|
|
|
|
3.2%
|
|
|
Fair value of plan assets
|
|
|
|
144,411
|
|
|
|
|
100.0
|
%
|
|
|
|
125,492
|
|
|
|
|
100.0%
|
|
|
|
The Companys 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.
A-15
Expected benefit payments for the five years subsequent to 2010
and the sum of the five years following those are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2014
|
|
|
|
2015
|
|
|
|
2016-2020
|
|
Expected benefit payments
|
|
|
$
|
11,512
|
|
|
|
$
|
11,635
|
|
|
|
$
|
12,046
|
|
|
|
$
|
13,279
|
|
|
|
$
|
13,564
|
|
|
|
$
|
74,365
|
|
The geographic components of earnings before income taxes are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
United States
|
|
|
$
|
86,817
|
|
|
|
$
|
51,167
|
|
|
|
$
|
82,604
|
|
Foreign
|
|
|
|
56,409
|
|
|
|
|
34,525
|
|
|
|
|
57,980
|
|
|
|
|
|
$
|
143,226
|
|
|
|
$
|
85,692
|
|
|
|
$
|
140,584
|
|
|
|
The provisions for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
$
|
27,218
|
|
|
|
$
|
11,492
|
|
|
|
$
|
26,053
|
|
State
|
|
|
|
1,866
|
|
|
|
|
1,596
|
|
|
|
|
483
|
|
Foreign
|
|
|
|
12,419
|
|
|
|
|
18,537
|
|
|
|
|
18,270
|
|
Deferred credit
|
|
|
|
(2,747
|
)
|
|
|
|
(7,845
|
)
|
|
|
|
(43
|
)
|
|
|
|
|
$
|
38,756
|
|
|
|
$
|
23,780
|
|
|
|
$
|
44,763
|
|
|
|
A reconciliation of the Companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
Income taxes at U.S. statutory rate
|
|
|
$
|
50,129
|
|
|
|
$
|
29,992
|
|
|
|
$
|
49,204
|
|
State income taxes, net of federal income tax
|
|
|
|
557
|
|
|
|
|
324
|
|
|
|
|
375
|
|
Nontaxable earnings of foreign affiliates
|
|
|
|
(4,586
|
)
|
|
|
|
(2,981
|
)
|
|
|
|
(1,555
|
)
|
Research and development credits
|
|
|
|
(600
|
)
|
|
|
|
(700
|
)
|
|
|
|
(875
|
)
|
Foreign earnings taxed at rates different from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the U.S. statutory rate
|
|
|
|
(9,226
|
)
|
|
|
|
(8,444
|
)
|
|
|
|
(3,352
|
)
|
Adjustments for uncertain tax positions
|
|
|
|
2,142
|
|
|
|
|
4,908
|
|
|
|
|
244
|
|
Other
|
|
|
|
340
|
|
|
|
|
681
|
|
|
|
|
722
|
|
|
|
|
|
$
|
38,756
|
|
|
|
$
|
23,780
|
|
|
|
$
|
44,763
|
|
|
|
A-16
Significant components of the Companys deferred income tax
assets and liabilities as of the end of fiscal years 2010 and
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and inventory valuation allowances
|
|
|
$
|
5,415
|
|
|
|
$
|
5,210
|
|
Deferred compensation accruals
|
|
|
|
2,073
|
|
|
|
|
2,466
|
|
Accrued pension expense
|
|
|
|
29,644
|
|
|
|
|
30,276
|
|
Stock-based compensation
|
|
|
|
9,963
|
|
|
|
|
4,950
|
|
Net operating loss and foreign tax credit carryforward
|
|
|
|
1,397
|
|
|
|
|
1,026
|
|
Other amounts not deductible until paid
|
|
|
|
10,448
|
|
|
|
|
10,604
|
|
|
Total gross deferred income tax assets
|
|
|
|
58,940
|
|
|
|
|
54,532
|
|
Less valuation allowance
|
|
|
|
(1,397
|
)
|
|
|
|
(1,026
|
)
|
|
Net deferred income tax assets
|
|
|
|
57,543
|
|
|
|
|
53,506
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Tax depreciation in excess of book depreciation
|
|
|
|
(4,347
|
)
|
|
|
|
(4,107
|
)
|
Prepaid pension expense
|
|
|
|
-
|
|
|
|
|
(994
|
)
|
Other
|
|
|
|
(2,369
|
)
|
|
|
|
(836
|
)
|
|
Total deferred income tax liabilities
|
|
|
|
(6,716
|
)
|
|
|
|
(5,937
|
)
|
|
Net deferred income tax assets
|
|
|
$
|
50,827
|
|
|
|
$
|
47,569
|
|
|
|
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
Companys unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
Beginning balance
|
|
|
$
|
8,396
|
|
|
|
$
|
3,171
|
|
Increases related to current year tax positions
|
|
|
|
2,645
|
|
|
|
|
5,225
|
|
Decrease due to lapse of statute
|
|
|
|
(300
|
)
|
|
|
|
-
|
|
|
Ending balance
|
|
|
$
|
10,741
|
|
|
|
$
|
8,396
|
|
|
|
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.
A-17
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.
|
|
8.
|
LITIGATION
AND CONTINGENCIES
|
The Company is involved in various environmental claims and
other legal actions arising in the normal course of business.
The environmental claims include sites where the
U.S. Environmental Protection Agency has notified the
Company that it is a potentially responsible party with respect
to environmental remediation. These remediation claims are
subject to ongoing environmental impact studies, assessment of
remediation alternatives, allocation of costs between
responsible parties and concurrence by regulatory authorities
and have not yet advanced to a stage where the Companys
liability is fixed. However, after taking into consideration
legal counsels 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
Companys 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
Companys management that these items will not have a
material adverse effect on the Companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
Minimum royalties
|
|
|
1,693
|
|
|
880
|
|